The ‘investing’ part of ‘institutional investing’ has been assaulted by disruption in the past 20 years. High-powered computing, passive products, fee wars: All have placed immense pressure upon what was, if not a comfortable business, a fairly stable one. There is a reason that very few people who were great at investing in the 1990s are still great at it.
And yet the other side of institutional investing — business development, marketing, sales, whatever your firm calls it — has largely been insulated from violent change. How institutional clients are sourced, nurtured, and maintained remains basically the same as it was 20 years ago. The tools differ on the margin — yes, we know, there are hardly any golf games allowed — but the model persists.
Will this pandemic change it?
That question has been central to my life for the past three months, just as it will have been with yours. This is the eleventh missive you’ve received from me since the beginning of March, and all of them, in one way or another, have been driving towards that question. I’ve spoken to a wide swath of the readers of this newsletter in hopes of divining the answer, and I have leaned heavily on a smaller, core group that I repeatedly question, probe, and challenge. I’ve spoken to allocators, consultants, and Institutional Investor’s competitors.
As a result of these conversations, here is my prediction:
Everything is going to change — except one thing.
Relationship management will be digitally dominated. Even post-pandemic, with few exceptions, the sense from seasoned distribution heads is that client-focused travel will be severely curtailed. Travel is squeezed from both sides: manager cost-cutting and allocators’ reluctance to pack their schedules with in-person visits with no clear purpose.
What happens is that low-value travel — the trip to Austin with no explicit monetary purpose, the jaunt to Chicago for lunch — comes under scrutiny.
So, what face-to-face interactions will be prioritized, and what will disappear?
For one, relationship management meetings will be deprioritized.
Sure, when Britt Harris wants an in-person meeting, you’ll go. But for the vast swath of clients, all important but none dominant, both they and you will transition online. And almost no one will complain: For allocators, a 30-minute Zoom call is less taxing than hosting a 30-minute meeting in an office (that invariably ends up being an hour-long meeting); for managers, a 30-minute Zoom call is a lot less taxing than a taxi to LGA, delays on the runway, a taxi from ORD to LaSalle St., and then doing it all in reverse after a 30-minute in-person meeting.
Glad-handing and bar tabs are deprioritized; efficient communication around portfolio behavior and performance, delivered digitally, is prioritized. That job can, and will, be done by less experienced staff.
Another knock-on impact: If enough managers sideline in-person relationship management, and enough allocators still like coffee, there will be a comparative advantage for those managers willing to invest in showing up.
Brand strength will be essential, and brand weakness fatal. This is also an acceleration of a current trend — that the big get bigger because of, among other things, the self-reinforcing nature of their brand.
Brand is one of those terms that infuriates the quantitative mind, partly because it can be used as an elusive cudgel in almost any argument:
“Well, we need to be at Milken. It’s a brand strengthener.”
“I don’t think this sales collateral aligns with our brand.”
“It doesn’t really fit with our brand to be flying coach.”
Forgive me for not trying to define it or create some metric to measure it. Instead, based on ten years of being in, but not of, the asset management milieu, the two common denominators I have noticed of strong brands is allocators’ viewing the firm as having exceptional client service, and exceptionally communicated analysis.
The first, as I mentioned, will change. The second must change, for there is altogether too much mediocre analysis being shoveled into allocator inboxes, devoid of original insight, poorly packaged and presented, delivered inconsistently, and in a manner that the target reader doesn’t want to consume.
You have to play ball with external databases. There aren’t too many holdouts to eVestment, but there are some. In an age where face-to-face interaction decreases, the value of data can only increase. In short: If you refuse to submit, you should be commit(ted).
Investment consultants, despite all prognostications, will only gain power — and further infuriate many distribution heads. To my everlasting frustration, consultants universally deny they have a “buy-list,” despite every asset manager knowing they do. Sure, they don’t call it a “buy-list” — but they also don’t start every search for a US long-only active equity manager with the eyes of a newborn. And this buy-list-that-isn’t-a-buy-list will become an even more important filter for their clients in an era where travel is curtailed.
But in-person initial contact will remain essential.
Traditionally, an in-person interaction — buttressed by data, technology, and brand — kickstarts the sales process. It’s a lot easier to pretend to just be passing through Sacramento with a few hours on your hands (how convenient!) when you’ve already met the head of private markets somewhere else, after all.
Not a single allocator or manager I’ve spoken to believes that allocations will ever occur without an in-person meeting. Even the six-day due diligence incident I wrote about two weeks ago was predicated on a pre-pandemic meeting.
And what is the most efficient way to meet allocators face-to-face?
Industry conferences.
(This is where I will be accused of talking my own book. Feel free to call me out.)
The knock-on effect of initial contact being the highest priority for asset managers is that conferences — commonly, although not universally, thought to be a cost-effective way to interact with a large number of prospects — will remain important, with some huge caveats.
Distribution heads should, and will, scrutinize conferences, the biggest arrow in their in-person quiver. Here’s what they’ll look for:
The ratio. There will be a flight to quality, and quality will be defined by quality and ratio of allocators that a manager can meet, not the tenure or brand of the organizer. Conferences that don’t provide these will first be hit by a lack of revenues stemming from current travel bans; they will then be hit by lack of revenues from asset manager skepticism. Of course, brands offer some protection — but not enough protection to overcome bad ratios and low-quality attendees.
The niche. With a closer look at ROI, managers will also demand that conference content align with their strategies for grabbing the right audience and putting their investment team on stage. Conferences that deliver this will win — but will be hamstrung by the lack of scalability in their own business model.
The intimate. Even putting aside social distancing, post-pandemic asset management conferences — where elephant hunting is prioritized — will shift toward intimate gatherings over ballroom venues. Prime brokerage conferences, with curated audiences, curated managers, and unlimited speaker budgets, will see a resurgence. Third parties with robust rolodexes will start their own events, to varied success.
The novel. Nobody wants to sit in a Convene conference room in midtown Manhattan. Conferences that take risks with venues will be rewarded with attendees.
There are so many knock-on effects from this coming shift that it would take up another 10 minutes of your time to just get started. Investment consultants who are gleeful at the thought of not being required to fly to Topeka for quarterly investment committee meetings won’t be so gleeful when that same client asks for a fee break because he no longer wants you to fly to Topeka. Client dinners — which sometimes were actually fun! — seem likely to diminish in frequency. International managers and allocators will be hit particularly hard — which could lead to further home-country bias.
And, of course, I might be wrong. I frequently am. Being wrong would be easier, for the status quo benefits Institutional Investor, and by extension, me.
But I don’t think I’m wrong here. Do you?
This article originally appeared on Institutional Investor.
