Why investors turn off when reading presentations!
By Ole Rollag.
After working for a French bank, where there is a hierarchy that needs to be respected, I went to work for a Nordic bank. I remember the first week or so there. The manager that I was working for gave me direct access to all of the inner workings of the bank and included me very early on in important meetings. Before one of our first meetings, I asked him if he wanted me to participate in the conversation and, if so, if there were any sensitive topics. He looked at me like I was on crack, replying, “Just say what you want to say.” Fortunately (or unfortunately) for him, I did. Not only that, I have done this ever since. It goes without saying that if you are honest and forthright, you don’t have to worry about covering anything up.
It does matter how you say things, though.
We find this particularly evident in fund presentations and how managers communicate, where identifying value becomes very nebulous. If you have seen a number of fund presentations, take a look at the “Why invest?” page to see what we mean:
- Tight risk controls
- Rigorous investment processes
- Experienced Team
What on earth does it all mean? We are probably all guilty of using some of this jargon. For example, no one knows what a rigorous investment process is – and have investors ever intentionally invested in managers that didn’t have a rigorous process?
What does transparency entail? Sharing everything the fund does pre- and post- trade, including research, or just sending over a fact sheet with the correct performance number?
A lot of funds are guilty of this obliqueness. In fact, some of the best in the world are. My theory behind the emptiness is three-fold:
The first, we really don’t know what makes us different, because fund managers don’t share their presentations. What typically happens is that we ask a friend to give us a presentation that looks pretty good, and we basically try to change and adapt it to what we think is expected – which is why a lot of the presentations look very similar.
The second is that we let our own suspicions control the way we communicate. Since hedge funds have a long tradition of shrouding themselves in secrecy, we tend to speak in generic terms and want the investor to be able to decipher or automatically identify the code words and “get it.” This is a dangerous way to communicate from a commercial perspective, both because so many are doing it and because you miss the chance to communicate what makes you so special.
The third, which has more truth in it than most would like to admit, is that we really don’t know why we are so special. The performance is good, but we can’t really point to a reason why the fund is different from other competitor.
So, what is the solution? Be honest with yourself.
Here are some of the questions that some investors have when allocating:
What do you do?
Why do you love what you do? (And I hope you do love it, because this is a long game)
What is your view of the world?
What do you do when things go wrong?
How do I know you will be in business next year?
Who is watching the money and keeping you in check?
Are you going to answer my questions when I give you money?
How do I know I can trust you?
Who are your business partners?
Why do you think you are better than the last person we spoke to in your asset class?
Empty words cloud the presentation and lose investors. One way to improve is to have someone read your presentation out loud to you and, if it sounds empty or horrible, change it.
Differentiation is easier if the fund is esoteric or niche. However, what do you do if you are competing in a crowded space? Well, if you can’t differentiate the fund on story or returns, then there are other ways to differentiate: price, liquidity, service levels, research, etc. We often forget that Boggle grew a phenomenal business competing on price and celebrated being as mediocre as possible (i.e. matching the index as close as possible).
Communication is surprisingly easy if you can just be honest with the investors (that is, with your clients). Every investor you have up to now had a reason to put their money in your product, and it wasn’t the “superior alpha generation” and “excellent risk controls.” There was something else. You can ask them, if all else fails. What made you stand out and why did they give you the business in the first place?
If you want to read more articles by Ole Rollag click here.
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