For years portfolio managers and marketing and sales executives within boutique asset managers have been arguing over what’s more important to emphasize – a fund’s investment performance analytics or its investment process and management team.
Obviously, benchmark-beating returns and alpha generation will get you in the door. But today’s highly skeptical advisors and institutional investors aren’t convinced by numbers alone. They want asset managers to prove that their results are the product of skill, rather than luck.
That’s why both marketing materials and sales pitches need to combine both objective data and persuasive qualitative narratives to give target audiences the full and accurate story behind a fund’s success.
To illustrate this point, I figured that a hypothetical analogy – just in time for the start of the baseball season – might be appropriate.
A major league dilemma
The general manager of the Buffalo Bobcats needs a new center fielder. He asks Steve the Sabermetrics (baseball data analytics) Specialist and Oscar the Old School Scout to provide their opinions on which of two veteran free agents, Alex and Zach, he should sign.
Both fielders are 29 and have played on three different teams. While their general defensive statistics and career batting averages are very similar, Steve strongly prefers Alex. He bases his recommendation on his analysis of three sabermetrics stats for the two players:
- wRC+: A weighted-runs stat used as an overall measure of hitting prowess;
- ISO: Isolated Power, which predicts a player’s ability hit extra-base hits; and
- WAR: Win Above Replacement value, which rates the overall value a player brings to a team.
According to Steve, Alex’s stats in all three of these areas are better than Zach’s. Therefore, he is the better candidate.
Oscar agrees that, statistically, Alex is a better player. But his interviews with Alex’s current and former teammates and managers reveals that Alex has always been a self-centered and hot-tempered player. Throughout his career he’s caused so much disruption in the clubhouse that when he joins a team mid-season its overall offense and defense significantly declines.
While statistically Zach may not match Alex as an offensive threat, he always gets along with his teammates and his presence has had no negative effects. In fact, many younger players turn to Zach for hitting and fielding advice, and under his mentorship their performance has often improved.
What’s the lesson here for asset managers?
While data can objectively reveal how well a fund performed, especially in comparison with its peers, it doesn’t explain the reasoning behind the results. The investment processes used to produce them. And the expertise of the investment management team that created them.
That’s why it’s important for asset managers to combine this quantitative and qualitative information in their marketing materials, pitchbooks and sales scripts. Because impressive numbers are even more impressive when they’re backed by a credible and compelling story that provides the proof behind the performance.
Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds, ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs. Click to read Dan’s latest Insight articles and to schedule a complimentary consultation.