Capital Raising and Investor Relations: Best Practices for Engagement

Based on a series of interviews held in October 2020 with 10 senior institutional allocators (CIOs and strategy heads) and 2 former allocators now in marketing roles. Contributors represent a cross section of investment consulting, endowments, foundations, corporate and public pensions and single family offices, across the United States.??

“You can tell when a marketer is playing the long game and trying to build a longer term relationship vs. trying to get you to make an allocation to the next fund. At the end of the day, it may be two to three years before we make an allocation. The best carry through.”?

~Strategy Head, Pension Fund?

In Capital Raising and Investor Relations: Best Practices for Engagement we will explore how honoring the timeless best practices of marketing and investor relations while innovating to embrace the current situation can best position investment managers and their client-facing teams to compete most effectively.?

• How has Covid-19 transformed client interaction?
• What are best practices within different forms of communication?
• What characteristics and behaviors best position a marketer for a positive outcome?
• What characteristics and behaviors risk sabotaging a marketer’s best efforts?
• What hope exists for newer or first-time funds in the current environment?
• How can investment managers best prepare for the future?

How has Covid-19 transformed client interaction?

?Overall, four key trends emerged from my interviews:

• Humanization of the process
• Sticking with the familiar
• Better quality and more frequent engagement?
• Ample opportunity to level up

Universally, everyone interviewed for this piece cited greater connectivity and an overall “humanization of the process” as positive developments during the past 8 months.

“For all the Zoom fatigue, this time has really allowed us to relate on a human level. There is often some element of comic relief to meetings. This has given me insights in to who they are as a person.”?

~Strategy Head, Pension Fund

One caveat however is that most of this deeper connectivity has been with existing relationships.

Most allocators interviewed said their interactions and activity since March 2020 have been almost exclusively focused on managers they had prior relationships with. In the case where they are looking to expand a mandate, take advantage of certain opportunities in the market, or replace an underperforming manager, it’s just more seamless from a due diligence perspective and more cost-effective to work with investors they know. ?

“Ultimately, I find it very difficult to establish enough conviction in a manager to advocate for them without getting to know them outside the office. I am not just underwriting their investment acumen; I am underwriting them as a person. Perhaps this will change over time if this is prolonged.”~ CIO, Family Office

Given the current dynamics, the level of engagement (dialogue and transparency) with existing and prospective managers has been elevated. Many LPs find themselves actually spending more time with managers and are enjoying greater access to investment professionals. Overall, this is a good thing, but efficiency and thoughtfulness become critical. Fatigue and overwhelm are real considerations.

Most allocators reported taking a very select number of socially distanced lunches and dinners during the past 8 months. This will pause in most regions of the country as winter sets in.

“Ultimately Zoom is working. Diligence is taking slightly longer but the quality has improved as people are not wasting time running around on planes. Time feels more productive and analytical.”~Strategy Head, Investment Consulting Firm

March and April presented marketers with an opportunity to level-up, as things were shifting so quickly. It no longer mattered that you were producing quarterly letters consistently for years. The best marketers were proactive, and recognized that allocators really valued the insights they may take for granted being in closer proximity to the trading desks.

“We talk about stress testing and risk at nauseum, but now we have a real world situation to use instead of a paper portfolio. It’s a really good time to go back to the basics.”

~Strategy Head, Pension Fund

What are best practices within different forms of communication: emails, calls, webinars, thought leadership, pitches and due diligence sessions?

While there are certainly universal best practices (integrity, respect, transparency etc.) that span all forms of communication, there are nuances to each, and certainly within the context of the current environment.?

“Across all forms of communication, focus on your competitive advantage, not tenure or track record. Remember your track record is the result of your competitive advantage, not what got you there. Tell me what is differentiated about you. This is easier to say than do.”?~Strategy Head, Pension Fund

Outreach (email):

Whether to address the crisis in outreach and engagement is incredibly tricky, and there is no right answer.?

“Honestly, it depends on the day I am having. Some days you want to dwell and some days you just don’t.”~Strategy Head, Pension Fund

Best practices:

• Length: the sweet spot seems to be 2-3 paragraphs in length. 3 sentences is too short to contain substance and 7 paragraphs is too long to be digestible.
• Content: performance should be easily accessible, ideally in the first paragraph.
• Personalize update emails.
• Avoid coming across as presumptuous of an LP’s time.

“I had a marketer recently say they were going to Cc their assistant to find us a time to speak. This landed badly in two ways. First, I hadn’t yet emailed back to say I wanted to talk, so they came across as being entitled to my time. Second, I personally don’t even have an assistant! It impresses me when someone senior schedules their own meetings.”?~Director of Investments, Foundation

Lack of transparency is one of the leading reasons for frustration and a lack of response on the part of LPs.

I find it frustrating when a placement agent reaches out about a “top tier manager in XYZ strategy” but doesn’t name the manager. I am not going to go through the extra step of emailing back to figure out if this is interesting or not.”~Director of Investments, Endowment

What if performance has been challenging? It’s best to avoid burying it in paragraph ten. Include performance early on, and tell the quick story.

“Tell me something about the firm that is new. A strategic hire. A revamped investment process. How you’ve drastically improved performance since we last looked at you. Perhaps position it as a solution for a current opportunity.”~Director of Investments, Foundation

What if your outreach efforts are being ignored?

“Be patient. Inboxes are swamped. The volume of outreach has significantly increased from a year ago. If you don’t hear back after 2-3 attempts, you may need to let it go. ~Director of Investments, Endowment

“As a public entity, if we’re not issuing an RFP soon there is really no point in engaging. I am polite and happy to develop relationships, but ultimately sometimes it comes down to luck of the draw with strategy and timing.”?~Director, Pension Fund

Outreach (calls):

Universally, email is preferred. But if you’re going to make calls:

• Avoid calling an LP after hours. Office lines are often now forwarded to cell phones, and you’re likely to catch them in the middle of dinner or otherwise engaged with family.
• Reach out with an agenda, offering something substantive rather than a general chat about the markets.

“I get between 10-15 cold calls per week. Unless a mutual connection who I know and trust reaches out directly and establishes some credibility, I don’t return them. I appreciate the effort, but returning cold calls would add another 15 hours to an already 50-60 hour work week. I just don’t have the time.”~CIO, Family Office

Pitches:

Walking through a pitchbook page by page is still very common practice. This surprised me, as virtually every allocator interviewed expressed a very strong preference for more interactive meetings.

“Shockingly, 97% of marketers just read through their pitch deck. This is a waste of time as I’ve already been through it. Be thorough in your preparation and research, and draw my attention to that which fits our overall investment needs.”?~ Strategy Head, Pension Fund

Best practices:?

• Establish and respect meeting times. At the beginning of Covid, many LPs were accepting hour long meetings and realized they had no breaks in between. If something is scheduled for 45-50 minutes, it’s important to respect the time.
• Avoid diving right in to opening remarks without connecting on a personal level.
• Be mindful of where you’re starting from; many allocators have already been through your deck.

“I had a manager start and end their presentation with the 4 things they wanted us to walk away with. It’s marketing 101. It’s hokey. But you know what? I still remember those four things.”~Strategy Head, Pension Fund

Virtual Due Diligence:

Most LPs interviewed appreciated one advantage Zoom offers: to cover a vast amount of topics in a condensed time. There are pros and cons of course, but on the positive side, a due diligence meeting no longer takes up their entire day.

"Historically our onsite due diligence would last anywhere from three hours to almost all day. That can’t happen on Zoom. At least for me. I max out after 2 hours, and prefer to do a morning or afternoon, or space it out over several days."~Director of Investments, Endowment

Best practices:

• Host separate webinars and Zoom calls more focused on the opportunity set.
• In most instances where investment professionals are on the line, marketers should open and close the meetings, but otherwise allow their colleagues to have the floor.
• Check in, and don’t assume everyone has 2-3 screens at home to simultaneously view the materials, video and take notes. Offer to share your screen. This applies to any virtual exchange.

“Reading body language during virtual meetings is difficult. And critical. Most marketers are not doing this well. If I am looking off to the side, you can tell my attention is waning. “~Strategy Head, Pension Fund

Webinars & Thought Leadership:

With so much content on offer, many firms will only have one shot at keeping a prospective LP’s attention.

“You get one chance to prove oneself. If we take the chance and it’s not thoughtful or if it’s too salesy, we’re not going to invest the time again.”?~ Director of Investments, Pension Fund

Overwhelmingly, everyone interviewed preferred interactive vs. pre-recorded or formal presentations. This is especially true if LPs are required to attend at a specific time and a replay isn’t offered.

“Many of us have kids. My wife and I are juggling a ton. What I find frustrating is that even some of the top firms are hosting conference calls without a replay function.

One London based manager hosted a morning call (UK time) with US LPs, and said they would not replay it. People remember these things.”~Portfolio Manager, Pension Fund

Best practices:

• A fireside chat format is preferred over scripted presentations.
• Secure a moderator who is interesting, fair and thoughtful, ideally from outside the firm.
• Provide access to individuals who are otherwise inaccessible.
• Set expectations about what a research piece or webinar is about, then honor them.??
• Balance offering a holistic view of the topic with content on your firm or product.
• Offer specificity vs. general information.
• Figure out a way to be fun and energetic, outside the norm.
• Highlight specific individuals within the firm.

While it’s difficult to differentiate, the good news is that once a manager establishes their content as valuable and digestible, LPs will look forward to receiving it and share it among their network.

“What would really pique my interest is if XYZ private equity firm hosted a webinar on how they were able to execute specific deals since March 2020, in the Covid environment. This would give me a great view of the firm and would certainly be a differentiator, as most firms aren’t able to do this and just offer general information.”~Director of Investments, Endowment

For even the most skilled live presenters, the transition to a virtual format can be surprisingly rocky. Even humbling. It pays to approach the new format with a beginner’s mind and seek out ways to continuously improve, perhaps even arranging formal media training for the team.

“If you spoke at a virtual event, watch the playback. This applies to any presenter - investment professionals or salespeople. I personally did this, and discovered I looked down at my notes the whole time. As someone who had spent a career doing these things live, it was appalling.”~Confidential

As with virtual pitches, it’s important to read body language for signs of waning attention spans and fatigue. It sounds basic, but this came up in several interviews as a frequent issue.

“Many of my colleagues are flooded with invites to webinars, Zooms and content. We’re getting overwhelmed with all this digital information, and I can see people almost starting to shut down."~Confidential

Given the volume of content and time constraints, it’s important to set clear expectations regarding what a presentation or thought piece is about, then honor the integrity of those expectations.

“I attended one webinar where XYZ firm focused so much on themselves and their product. It had been offered as an overview of the private equity industry, but that’s not what it was. I stayed on, but was annoyed and disappointed.”?~Director of Investments, Pension Fund

Finally, highlighting people at different levels across the firm was cited as a powerful soft marketing tool.

“I have been particularly impressed by one firm’s soft marketing. I love how they highlight their people, especially analysts. This really resonated well with me. I could get a better sense of the firm’s diversity of thought. If it came down to two managers with similar return profiles, I would choose the one I could better relate to culturally.”?~Strategy Head, Pension Fund

What characteristics and behaviors best position a marketer for a positive outcome?

“The more you can make an allocator’s job easier the better. This requires a high level of EQ along with technical expertise.”~Strategy Head, Pension Fund

General guidance:

• Remember not every client likes to be approached in the same way. Take time to read the person and listen carefully to the clues they are offering.
• Make sure your follow up strikes the right chord – friendly, not overly burdensome and respectful of time.
• Demonstrate humility and curiosity.
• Understand what this all means to the institution they serve, not just for their allocations.
• Generously share your and the firm’s unique knowledge and insights.
• Be aware of what is going on in an allocator’s region (e.g. forest fires, protests etc.)
• Offer examples, specificity and the greatest degree of transparency possible.?
• Listen first, then offer insights and solutions.
• Graciously take no for an answer.
• Listen well, not just in the moment but over years. Take good notes so you can reference the past, incorporate current market trends and ultimately connect the dots.
• Be willing to have a point of view and have conviction.
• While the press can be a double edged sword, be open minded to engaging.

“I was introduced to someone on the business development team at XYZ firm. I was able to meet with them ahead of Covid, and they’ve done a terrific job staying in front of me. The firm overall has done a great job at virtual due diligence sessions, both in terms of content and timing, and they’ve remained front of mind with me because of that. They are as well positioned as possible; now it depends on how our overall portfolio needs evolve.”~Strategy Head, Pension Fund

The ability to contextualize is a huge differentiator.

“Be savvy and intellectually aware. Follow the markets. The best people in the business contextualize. They understand and can effectively communicate how their strategy relates to the broader market without having to go back to the PM.”~Portfolio Manager, Pension Fund

Consider your investor base, particularly their levels of technical expertise.

“Know your investor base. I was on a conference call with a manager talking in depth about credit derivatives. I was following, but in the back of my mind wondered how much of this 100 person audience they had lost.”?~Portfolio Manager, Pension Fund?

Recognize feedback as a gift. Solicit, appreciate and onboard what LPs are taking the time to share. Seek out constant improvement and the chance to level up.

“One marketer went beyond the typical thanks and circled back with specific action items showing how they took my feedback on board. This really impressed me.”~Portfolio Manager, Pension Fund

To illustrate the point around being mindful of how different investors like to be approached, I offer these two direct quotes (and wish you luck navigating this one):

“Don’t start with phrases like “how can I be helpful?” Unless you’re a mega-firm, this comes across as disingenuous.”~Director of Investments, Endowment

and…

“Begin with “how can I be helpful?” Then I will give you the opening to make the pitch. If you start the pitch first you’ve lost my attention.”~ Strategy Head, Pension Fund

What characteristics and behaviors risk sabotaging a marketer’s best efforts?

“Most people I work with are fantastic, and I’ve had the opportunity to meet some exceptional sales and IR professionals in this role. But I do see behaviors that are ineffective at best, or just plain annoying.”~Portfolio Manager, Pension Fund

Much of the advice offered is timeless, but I would argue it’s worth revisiting the basics given the competitiveness of the current environment.

What is not landing well?

• Downplaying and/or not properly communicating the risk/reward tradeoff of the investment.
• Overplaying one’s perceived uniqueness.
• Emails that are too lengthy, especially when performance is buried.
• Not making the investment team available.
• Offering vague answers, lack of transparency.
• Requiring the PM to answer questions around how your strategy relates to the broader markets.
• Neglecting to read body language for signs of waning attention and fatigue.
• Circular references (e.g. “reference our DDQ”)
• Overly aggressive follow up.
• Breaching basic Zoom etiquette.
• Focusing on quarterly sales targets vs. taking a 2-3 year view.
• Pushing back instead of accepting a “no” and telling the LP all the ways in which they were wrong to make the decision.
• Going over someone’s head, not respecting the existing point of contact.

How does one define “overly aggressive outreach.” For example:

“Some salespeople will call my office line, then my cell, then send me an email. Just pick one.”??~ Strategy Head, Pension Fund

One of the most often cited frustrations that emerged from my conversations centered around the availability of the investment teams. While this has actually gotten better for most LPs in the Covid environment, many voiced a desire for even greater access.

“If I am going to take the call, make the deal people available. If they are willing to invest the time, that shows me the strength and quality of the organization, and that they take fundraising seriously.”~Strategy Head, Investment Consulting Firm

Finally, during my conversations a list emerged of “hackneyed, salesy phrases I would be happy never to hear again.” (Yes, that is a direct quote.)

I decided to inject some fun here while shedding light on the phrases marketers might consider retiring.?

What hope exists for newer or first-time funds?

Most allocators interviewed will engage in conversations, particularly pension plans with established emerging manager programs. But the statistical likelihood of a newer or first-time fund receiving an allocation in the near term, while not impossible, has been limited.

Most consideration is going to managers with already established connectivity; the perception that it is very difficult for a newcomer to gain meaningful traction is real. It was already challenging, and the lack of conferences and onsite due diligence has only exacerbated this difficulty.

“It’s human nature that some of our managers are more comfortable with Zoom while others are frozen. Many have spent their careers being able to make a personal connection outside the office. As an asset owner with a fiduciary responsibility, eventually you need to trust the process can be done over Zoom.”?~Strategy Head, Investment Consulting Firm

Most allocators suggested their thinking may evolve on this in 2021, and it will be interesting to see what lasting effect this dynamic has on the process in years to come.

“If this stretches on I imagine next year might be different. My peers and I will likely bring in new managers but, honestly, I have no idea how receptive boards and trustees will be.~ Strategy Head, Pension Fund

Most allocators with a history of working with emerging managers spoke very favorably of the “speed dating” summits and conferences of years past, and hope to see more opportunities emerge to replicate this experience virtually.

While acknowledging the difficulty, let’s explore what is resonating:

• Offering co-investment opportunities.
• Minority and women-owned businesses.
• ?(Virtual) “speed dating” opportunities.
• A first time fund launched by a team that spun out (with a portable track record) of a highly regarded institution, ideally one that already has strong consultant relationships.
• Warm lead generation: this is especially important for family offices, both pre-Covid and today.?
• A story that is bullet proof.
• Communicate your willingness to spend as much time on Zoom as the LP needs.
• References carry a lot of weight, and even more so during Covid. Savvy investor relations professionals will offer a robust list (e.g. 5 other similar LPs who have invested and 5 who perhaps didn’t invest but know them well.)

“We will consider a first time fund if there is very clear attribution from a very experienced investor who was heading and had full investment authority at a prior firm. We only do a handful of these deals a year so the situation needs to be bullet proof. No hair. No risk. For example, if two co-founders have never worked together, I am not willing to make the bet they will do so together successfully now.”~Director of Investments, Endowment

One allocator advised new managers to consider starting off as a family office, building a 3 year track record and getting all the operations in line before seeking outside capital.

How can investment management firms best prepare for the future?

Many of the communication tools that emerged or increased in utilization during Covid-19 are likely here to stay. While acknowledging the advantages of in-person meetings, allocators are pleased with how managers have adapted. Overall, they cited an appreciation for the humanization of the process, increased access and efficiency, and even the overwhelming number of webinar and thought leadership offerings.

Most of the individuals interviewed felt their managers and prospective managers have done the very best job possible in the midst of an extraordinary situation. Most are very much looking forward to face to face interactions again, but expect many of these virtual tools to remain once we are past the current crisis.?

As investment management firms continue to innovate, it bears keeping the basics in mind. Much of the best practice advice offered during my interviews (as well as the behaviors that aren’t landing well) have remained consistent over many years.

Operating with the highest degree of transparency, respect, technical acumen, thoughtfulness, integrity and EQ remains on equal footing with creativity, leveraging technology, innovation and content generation.

An integration of historical best practices with the adaptability 2020 demanded will best position investment managers to attract and serve their clients in the current environment and years to come.

Laurie Thompson is the founder of Willow Hill Advisors, a retained executive recruiting and career advisory firm serving the institutional asset management industry. Prior to founding Willow Hill in 2019, Laurie spent 16 years in the financial services practice of a large global executive search and leadership advisory firm.

Laurie works in close partnership with hiring managers and human resources professionals to build exceptional client-facing teams while supporting fundraising and investor relations professionals in reaching and sustaining individual peak performance.

www.willowhilladvisors.com

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