Successful International Distribution – Part 2
By Daniel T. Allen, CEO, Aliier
Previously, we have discussed what meaningful access means. In this article we will start discussing the various aspects of international distribution and specifically, we will discuss the types of managers and what causes them to be successful or unsuccessful.
Generally, there are three types of asset management offerings in the world. I label them as the:
- Deserving Dead;
- Talented Underperformers; and,
- Successful Pragmatists.
Numbers 1 and 2 are often wasting their time and the time of others, when they try to pursue international distribution. It is important, however, to understand who they are and why they struggle.
(1) Deserving Dead
We have all found ourselves caught in the symbolic trap of trying to push a boulder up a hill. We are afraid to let go of a strategy that we have been attempting to utilize, but it isn’t beneficial enough to keep going. Maybe the strategy was a good one 20 years ago, but times have changed. Or, maybe the strategy simply doesn’t work. Every manager needs to step back and reevaluate their offerings from time-to-time and close out obsolete offerings.
Don’t fall in love with your strategies. Make new mistakes, don’t keep repeating the old ones. Just because one investor put a token investment with you, or someone asked you to build a specific strategy, doesn’t mean it makes sense commercially. Avoid thinking you can solve your problem by foisting a poor strategy on a new market. It will be very expensive, and it is not the solution to your problem.
NOTE: There is one caveat to this. Perspectives vary from one market to another. Sometimes what is a highly niche strategy in one market is broadly attractive in another. So, if your performance is good but assets have been tough to raise, perhaps you do need to consider an international market. For example, a true global strategy can be hard to market in the U.S. but might be very popular in Australia. Ask around and get your strategy evaluated for other markets. But if this situation isn’t the case, do not continue to waste your time and resources (and other peoples) pushing uphill.
(2) Talented Underperformers
Unfortunately, some managers fall into the trap of thinking that it is all about the Portfolio Manager (PM). In fact, it often seems like the better a PM performs, the more likely this self-destructive mentality will set in. The problem is, it isn’t just about the PM. It isn’t even mostly about them. Whereas it is certainly true that a strong portfolio management team is an enormous asset to a firm, the truly great managers understand and embrace that they need to build a multi-component machine.
The analogy I frequently use is that of a sports car. Everyone loves to open the hood and check out the high-performance engine. Think of the PM and the strategy as the engine. Without the right transmission to smoothly convert the engine’s power, well designed tires to grip the road, a well-engineered suspension and chassis for handling difficult curves, and even the steering wheel, turn indicators, and lights to determine direction, stay out of trouble, and see the path ahead, that wonderfully designed, high-performance engine is not going anywhere.
Sophisticated investors see manager performance holistically. They evaluate the whole firm, not just the PM. Unfortunately, what could be some of the best investment strategies in the world are often hobbled by this kind of one-dimensional thinking. Frustrated that the world is not beating a path to their door, we often see these firms seek out international markets in the belief that if they just show up they will be successful.
The fact is that there are tens of thousands of asset managers. Thousands of them have developed excellent, commercially marketable investment strategies that are, in the end, unsuccessful. Although, it may be comforting to imagine that you have designed a better engine, that is not enough. Unless you identify and surround yourself with, and fully support, a professional team that provides structure to your firm, keeps everything on track, and is directing prospects to your strategy, no one will discover what you have done, and ultimately, you will underperform in gathering assets.
(3) Successful Pragmatists
We have all seen firms that have grown dramatically. Although they generally have quality strategies, most often they are not the top performers nor are they necessarily unique in their approach. So, what causes one asset manager to grow from an interesting boutique into a dominant manager and yet another to stall out?
In my experience, it is typically because these successful firms understand that asset management is a multi-dimensional business and run it accordingly. First, they stop doing what doesn’t work as soon as they recognize that it doesn’t work. Second, they check their egos and make the effort to build both an internal and external team that pulls together. Portfolio management itself is most often handled by a team so that the loss of one PM doesn’t dramatically impact the firm. Distribution is recognized as critical to firm success and is heavily supported. When doing business internationally, successful managers will typically be in-country 3-4+ times a year for road trips and to support the local distribution team’s efforts. These firms not only place a premium on presenting themselves professionally, they adjust themselves to each market rather than expecting markets to adjust to them.
In summary, the successful firm is unafraid to try different things to get the word out about who they are and what they do, and they don’t waste a ton of time making the easy decisions. The management in these firms recognize that successful growth of their firm will be an ongoing and evolving challenge, but they don’t wring their hands about it — they recognize that success isn’t magic, it’s just hard work.
The previous article in the series:
International Distribution – Part 1: International Access
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