Each country’s fund-raising environment has its own distinct nuances, which lead to differences in how sales professionals target that marketplace, and how much time is required for them to build their reputations and networks. For example, in the UK, consultant ratings are a highly influential factor, but this is not the case in the US; meanwhile Iberian fund-raising revolves around family offices and the wholesale market, whereas in the UK the main pool of assets is institutional.
Despite the possible challenges inherent in adapting to these regional idiosyncrasies, there has been a recent notable increase in US, Asian and European asset managers either making senior sales hires to cover the UK, or even setting up their first ever office presences here, clearly convinced of significant fund-raising potential. After discussions with our network among the UK pension schemes, insurers and investment consultants, as well as the asset management sales professionals who target them, we have compiled their insights to help us to provide a summary of the current UK institutional capital-raising climate, and what is required to succeed in it.
In our conversations with a number of senior institutional salespeople, a recurrent theme was the importance of employing a sophisticated distribution strategy. There was no issue taken with old-established techniques such as cold-calling to open a dialogue, or the value of a strong Rolodex, however a solutions-based approach is paramount. By understanding a client’s precise requirements, the right product can be sold in such a way that it presents the answer to whatever that client may want.
This view is shared by insurers and pension schemes, whose CIOs and Investment Directors are peppered with cold calls and emails. For them, the introductions that often stand out are those where it is evident that careful research has been conducted into the target LPs, and the fund being sold thus seems almost tailor-made for them. Further to this, it was emphasised to us that product knowledge is the vital component of a good pitch, and we were given several examples of instances where sales professionals engaged in conversations and presentations, yet were unable to deliver a sufficient degree of substantiating detail. Equally though, one must remember to impart information at the appropriate technical level for the target audience; for while governance within pension schemes has improved, there are sometimes only a couple of trustees who possess adequate familiarity with certain investment products.
While understanding clients’ individual situations is vital for institutional salespeople in building credibility, an understanding of wider market conditions also provides a competitive advantage when trying to position products as solutions. This is, again, a component of the sophisticated sales methodology referred to earlier, and was described to us by institutional investors as a key differentiator between sales professionals. It seems hard to deny the value of striving for the most up-to-the-minute involvement in the market, when a sophisticated understanding of industry topics, such as pension reforms or insurers diversifying their assets, allows a salesperson to pre-empt clients’ needs rather than attempt to provide reactive solutions. The real art, though, is in discerning what is distracting ‘noise’, and what is truly relevant information.
This is a perennial problem for asset managers, and consequently for sales professionals, especially in such a saturated and competitive market. Some firms will demand a premium for a niche or outperforming fund, while others, especially those with shorter track records, offer fees below the market rate in order to garner interest. On a related note, it now seems that the larger asset managers utilise their passive products to gain traction, offering a minimal risk aggregate product with very low fees, and then look to cross-sell into their actively-managed and more specialist strategies. Whilst this might not be an apparent issue, the UK’s local government pension schemes will be pooling their assets from 91 separate entities to 8, and the subsequent beauty parade to work with them will be more intense than ever. Perhaps this entry tactic will become more prominent once the consolidation has occurred.
While the topic of fees is inevitably viewed with some frustration by all parties involved, all that is ever really hoped for is value for money. While one should not expect cheaper funds to provide better returns than their competition, equally the most expensive one is not necessarily the best-performing. An LP may pay a few bps above the market rate but will rarely go beyond, so if a product is priced fairly, then the chance of successfully securing investment in it increases significantly.
This article only scratches the surface of the process of institutional capital-raising in the UK, and there are numerous other important variables involved, such as consultant ratings, and the growing influence of fiduciary managers. The market is changing significantly, and sales professionals must adapt to this shifting landscape. However, despite differences of opinion on certain topics, it is clear that there are common views shared between sales professionals and investors, and this bodes well for active managers, both old and new, as they seek commitments to their funds.
This was encapsulated well by the CIO of a large corporate pension scheme, who cited to me the example of an asset manager that has recently secured an investment from his team, because it offered a reasonably priced product, spared no expense in its presentation work, and crucially allowed extensive access to all its key senior professionals, including the CEO. These individuals provided the product knowledge and thus the credibility needed to build a solid relationship, but also the market insight that allowed them to position their strategy in an irresistible manner, despite not being rated.