Fund managers are faced with a myriad of challenges from trading and risk management to compliance and operating a business. But the challenge of marketing and raising money can be most daunting of all.
Jim Kharouf, editor-in-chief of John Lothian News, spoke with Alan Snyder, managing partner of Shinnecock Group, who says there are several keys to attracting and keeping institutional investors. One of them is “sharing your secret sauce.”
Snyder said that providing deeper information about how a fund trades is part of the real key in the sales process – engendering trust.
“Financial services is like an intangible,” Snyder said. “It’s not like buying a car, where you can go kick the tires and decide [you] want red or black paint. So you’ve got to create trust. I must have an investor trust me that I will be a good steward of their money.”
Snyder argued that sharing the “secret sauce” or how a firm trades is less risky than one might imagine.
“So many managers are afraid, saying, “If I share what I’m doing, maybe somebody will copy it,” Snyder said. “Institutional investors are not interested in copying or stealing your idea. They are interested in knowing that your track record is replicable, it’s not random, it’s not just the luck of a few years.”
By doing so, Snyder says that firms can differentiate themselves from the rest of their peers. He says it’s critical if you want to gain trust and attract a large institutional client. Snyder says firms should take that message and work it “into everything that you’re doing.” That messaging should then be incorporated into marketing and information elements such as a “due diligence questionnaire”, or even a PowerPoint presentation or just a FAQ page for interested investors.
“You gotta sweat the details,” Snyder said. “In your offering materials, don’t have typos. In your marketing materials, don’t have sentences that make no sense. Respect the reader. Respect the person you are talking to.”
Snyder is also a big believer in managers who have their own money invested in the fund.
“I think it’s truly awesome when a manager says, ‘I have my entire net worth invested in what I am doing,'” Snyder said. “I have all my friends and family members in it. That person now has true, passionate, skin in the game. How can you not be impressed by that, because they are going to eat, live and breathe what they are doing.”
Snyder said the managed futures space has had a rough patch the past three or four years. The BarclayHedge CTA Index posted losses of 1 percent to 3 percent each of the past three years and is reporting modest positive growth this year. Not a great selling point. But Snyder said trend followers are starting to show better performance and new successful trading styles are emerging, along with discretionary funds and options traders that go beyond boom-and-bust premium selling strategies.
“Depending on how you want to track it, they’ve had either three or four years of subpar performance,” Snyder said. “We’re starting to see green shoots, if you will, emerge because you’re seeing dispersion between different managers. It’s not everybody doing poorly. And in fact, in the past three months, we’re starting to see the entire category doing better.”