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Small and Large Asset Managers—National and International:

“Footsore” and “Mediocre” Managers and the Emperor’s New Clothes

By Markus Hill, Independent Asset Management Consultant

(Published only in German, www.finanzen.net)

“One should not carry owls to Athens” (German proverb). Figuratively, for the fund industry, this

probably means that too many news have no news value.

In contrast to new products, new investment approaches arise more frequently; a return of something well

known dressed up in a new outfit. Fund sales and communication often run along similar lines nationally

and internationally. Many fund industry phenomena, with a certain degree of abstract thinking, are

transferable to other industries. A possible conclusion: a product with “bad” or “mediocre” characteristics

leads to difficulties in terms of communication and sales! (“Mediocre” and “bad” need to be understood as

value-free terms; these are simply placeholders for “difficult to place added value items for the institutional

investor—numerous client sales approaches, many justification arguments, or long-term disinterest on

behalf of fund selectors.”) A simple truth that also rings true for the asset management industry, in which,

naturally, not only excellent fund managers drive the market.

To remain fair, however, it is important to note that the whip of transparency, for example, makes life

difficult for providers in the fund business. Do affected national and international asset managers draw

conclusions and consequences for their business strategy based on the position within the greatly contested

market or based on their communication with investors?

Hooks and eyes in sales—Presentation of problems of affected asset managers

Fund boutiques and corporation-bound asset managers struggle with problems of transparency, fixed cost

block and with the distribution problem of “above average portfolio manager skills resource.” These topics

have different degrees of importance in different organizational contexts. Institutional investors can often

relax and utilize diverse sources of information (“hit lists”; rankings, ratings, consultants, databanks, etc.).

Many activities that are practiced in today’s sales department by investment companies would probably be

reconsidered (zero base budgeting), if there, perhaps, weren’t some irrelevant considerations that influence

the perpetuation of existing structures.

Why should sales staff continue to be motivated, if “short term performance sales” are no longer relevant

due to transparency and selector professionalism? Or seem economical? If I, as a provider, am not

positioned within the top 10%, or if I do not have the potential to get to that position in the foreseeable

future, then what topics may I meaningfully discuss with institutional investors?

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Typical Snares for national and international portfolio managers

(a) “Don’t call us, we call you!”

Directly talking to institutional investors (“product feedback”) or attending national or international

industry events (“International FundForum Panel Discussion in Monaco), one discovers few differences

between the perceptions of management expertise. Companies with excellent performance and interesting

approaches (continuity!) build a welcome basis for direct dialogue. Companies with “mediocre” or “bad”

performance and expertise offer unproductive dialogue and little added value in terms of conversation;

often, in part, the direct address by the sales department is perceived as “annoyance, nuisance, or waste of

time” by investors (Original quote: Family Office, pension plans, private banking fund selection.) “Don’t

call us, we call you!” – An attitude of investors that doesn’t improve the footsore product of a given

salesperson. At no fault of its own, sales is being reprimanded at this point, suggesting that the investment

company didn’t do its homework for the product conception or that the manager had more than a short term

performance weak phase. A cross-cultural element of understanding at this point is that both national and

international salespeople experience the same pain!

(b) Continuity of “mediocre” to “bad” performance

It is understandable, as it is in many industries, that organizations develop a life of their own. If a sales

machine has a particular size, full capacity is a necessity. What is often forgotten is that even given the best

network and goodwill in the investor department, the most talented salespeople still cannot turn water into

wine. If the product, the manager, or the performance does not offer added value during the dialog with

institutional investors, the salesperson will probably receive an array of polite small talk and coffee klatch

conversations but won’t get any tickets.

In all fairness, one must admit that clients can easily overload the prospect network of institutional

investors with their ideology of “appointments, appointments, appointments.” This goes as far as some

decision- makers declining the calls of sales reps or asset managers; with the statement, “Please don’t

forward this call, it is the one who frequently offers footsore products,” they ignore the caller.

Conversely, a boomerang can develop for the asset manager: One’s own sales force produces many, nice

conversation protocols that promise great potential for the employer. With continuing salary payments, the

employee can calmly look for a new employer, one who offers attractive performance/expertise and who, in

addition, may put a bonus payment within reach.

An interesting question at this point assumes that competitor’s products of the same category are indeed

“bought.” For instance, if a sales rep contacts 200 investors within a given period but always receives

dismissive responses, who is responsible? The portfolio management due to its “mediocre” performance?

The executive or the corporate owner? Or maybe the person who hired the salesperson and who suddenly

comes to his or her senses, realizing that the sales rep is lacking sales skills? How should the average

employee explain to his or her employer that his or her product is unattractive to institutional investors?

This is certainly a topic that can lead to engaging and controversial employee talks and can offer sales team

meetings (“rapport”) conversation contents. Executives’ and specialists’ abilities to communication, to

work in a team, but also their ability to deal with critique could be a great testing environment here.

(c) “Homework market entry” –indirect approaches and efficiency flaws

Many mistakes in term of market preparation of national and international asset managers are based on

simple reasons. A product is conceptualized on a “green pasture,” and sales have to accept it as it is—

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perhaps even the completely disinterested investor. Unrealistic expectations of fund initiation—when, at

first, managers invest the first five million themselves and assume fundraising for the remainder will run

smoothly. International asset managers often utilize another approach: visit an industry conference, talk to a

couple of competitors (many industry events have a particular high number of investors present – “more

hunters than game”), and try to, by chance, to contact investors in target markets by phone to schedule

appointments. Another approach that sometimes does pay off. In a way, opportunism versus structured

market preparation is a move that is often falsely attributed to the shortcomings of the particular salesperson

working it: “Go to Germany, Switzerland, Austria, and generate turnout. Once you have accomplished that,

you will get a budget so that you can systematically work on the market.” This could be an unofficial

description of some international asset managers. The results speak for themselves: a few calls, a few

meetings, but at the end of the day, one comes to the conclusion that Germany is a tough market after all. It

is just too bad that many good asset managers, therefore, do not make contact with investors, missing the

chance of adding value.

It could be much simpler: For instance, one could first (!) contact a number of target investors to gather

blunt feedback. Yes, no, maybe—often an efficient, direct, target-oriented simple trial-and-error approach.

Obviously, there is a chance that one receives a resolute no for an answer. Can the national or international

product provider live with this?

Snares—are there success formulas for prevention?

First of all, there are no success formulas. Simply said, the author is certainly aware of his limits of

knowledge here. A consequence could be that one changes ones business model, communication or that one

utilizes ones network differently. Business models are increasingly questioned. What is often forgotten is

that “mediocre” to “bad” portfolio managers have not voluntarily positioned themselves as such. The

“misfortune” within the institutional field is professionalism on side of the investors and transparency. For

private clientele, I can make up deficits through service, consultations and such. Survival of the private

banking sector shows this through a number of segments: Even average performance can be compensated

through good relationship management.

Another way for some particular mangers could be to increase ones consultant status within a given

segment. A good soccer trainer does not have to be a good soccer player. Should he not convince on all

levels as a soccer player (portfolio manager), he can at least claim that he does not only know in theory

where the snares of portfolio management lie, supporting his credibility. With substance and “creative”

communication new positioning can happen at times.

A rather radical way could be that particular managers allow their own products to flow into the private

client segment. To address institutional clients, sales of excellent, third managers could become interesting.

If one, for example, spends three years courting institutional providers without much success, one ends up

with an excellent database. Perhaps previously addressed investors may enjoy another round of

communications with content that appears attractive for further discussion (“good portfolio manager,

interesting approach”).

Investment companies and classical custodians could also play a positive role in finding a solution.

Corporations such as Universal Investment, AmpegaGerling, Hansainvest as well as State Street Global

Services, Northern Trust, Societe Generale Securities Services, and many more. Good consulting for fund

conceptions and fund initiation often prevent false starts of managers. An interesting field for market entry

in Germany could also be sales and marketing services for fund initiators in the German-speaking area—

classical investment companies in Germany and Luxembourg currently play a strong role here. Classical

custodians employ approaches in these areas, but see themselves as less of a full service provider at present.

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Conclusion

The abovementioned issues are nothing new in this industry; one actually does “carry owls to Athens”—for

particular market groups. The behavior of other market groups perhaps shows that these issues may not be

clear to some decision-makers: the market is swamped, investors want top products, products are

transparent, and the attention span of investors becomes shorter for alternative “problem solving” in the

area of asset management. Many investors, but also salespeople, know of the above-mentioned issues.

Unfortunately, one suffers under these circumstances or constraints. This should, perhaps, not lead to the

sensations described in a popular fairy tale, where the innocent child concludes at the end—transferable to

portfolio management without added value: “They are all naked!”

Feedback, additional thoughts, experience or any kind of dialogue on such context is most welcome;

please contact info@markus-hill.com or Mary Daute (Asst. Manager). Phone: + 49 17 66 33 66 094

Markus Hill

Markus Hill (MSc in Economics) is an independent asset management consultant based in Frankfurt,

Germany Professional experience includes SEB Bank and Credit Suisse Asset Management. In addition, he

worked as head of sales and PR for a German fund boutique. Since 2005 he specialized in the management

of mandates, sales, marketing, and PR (consulting, "introducing"). Markus is also involved in selecting

themes in the specialist areas of target funds with a multi-management aspect, fund boutiques and mutual

funds for institutional investors (product scouting, fund selection). Furthermore he is actively engaged in

cooperation with the market-leading Private Label Funds/Master KAG in Germany (Universal-Investment)

promoting the idea of independent asset management and was the Co-Initiator of the first all-German

Consultant survey in 2005 and the first "UCITS-survey" in 2003. Market entry into Germany, behavior of

fund selectors and fund providers in German asset management industry are often discussed by him, e.g. in

his asset-management-publication MH-Focus. Through many articles, columns and presentations (national

and international) he has become a highly recognized expert in the German asset management industry.

"Industry multiplier" is a term often used by journalists and clients to describe his style and personality.

(Markus Hill/ MH Services assigned in the role of Media Partner for: UCITS Alternatives

Conference in Zürich, September 2011)

Markus Hill MH Services

email: info@markus-hill.com

website: www.markus-hill.com

phone: 0049 (0) 69 280 714 mobile: 0049 (0) 163 4616 179