What managers get right (How to get that 2nd meeting)

One of the most read newsletters I’ve written is How Not to get a Second Meeting?from December 2022. In that piece, we explored the reasons we do not further engage with investment managers across asset classes and provided you folks with a handy warning system graphic to help manage your interactions with prospective investors. Today, let’s spend some time talking about what that select handful of managers do to get to a second meeting (and beyond).??

#1 Check your ego at the door?

In allocator land, incumbents have the advantage. Dumping y’all on the secondary market, while occasionally tempting, is generally a loss leader and screws up our cash flows. However, most incoming CIOs have a runway where we assess the overall fit of your private fund in our allocation.?If you provide us with an unpleasant experience because you are an entitled incumbent, be ready for change.

It is incredibly helpful if you approach our entity assuming you are re-auditioning for the role. Are you meeting with folks who don’t have the level of title you are accustomed to? Is the organization less friendly than you formerly experienced? Let’s be clear: these are you problems. The best incumbents understand that organizational changes are normal, and they show up ready to re-engage in a helpful and open manner. One sign that your organization is a great partner is recognition that the Limited Partner Advisory Committee (LPAC) seat belongs to the named Limited Partner entity and not the senior investment leadership at that Limited Partner entity.?

Last year, an asset manager reached out to my team to meet for coffee while he was in town. The timing was perfect as the organization had gone through some significant management changes and my team had several questions we wanted answered. I had originally planned to meet up with him and bring two of our?analysts. Unfortunately, an urgent matter required my attention, so I sent my regrets and our?two analysts attended without me. Their report back was not good. The asset manager was cold and visibly annoyed. He forwent any social niceties, refused to make eye contact or conversation with the analysts, and answered the questions they had in a clipped and put-upon fashion. This left our team members feeling deeply uncomfortable with the whole encounter. More confusing, this asset manager had met both analysts a number of times before and had been much friendlier to them when I was in attendance. ?

Who you meet with in a resource constrained non-profit organization is not a sign of your level of importance. If you decide to make it about you, please know my team has clocked and noted this as a red flag. Expect that we are actively looking for a replacement fund option. ?

#2 Understand the organization?

Sometimes, the CIO has a setup where they do a lot of eating out and golfing and?they heavily rely on?their consultants. Other times, the CIO manages a whole team in-house and directly oversees sourcing and diligence. Most commonly, investment teams are in between these situations because of leadership and governance, which inevitably change over time.

In our case, the Foundation investment staff is 1) fully in-house and 2) working to deeply integrate our investment work with our grant-making work. Additionally, our investment team members serve on the leadership teams of the Saint Paul & Minnesota Foundation and our incredible partners (the F. R. Bigelow Foundation and the Mardag Family Foundation). All in addition to personal non-profit volunteer work. We’re busy! We have a lot of audiences we must manage!

We love when you partner with us by trying to better understand how you can contribute to and be a part of the bigger vision.?You get major bonus points if?you show up to a meeting having read my newsletter “What the Heck is a Community Foundation” and can speak to how investing with your firm aligns with our mission and core values.?

#3 Articulate your special sauce?

I know this seems like a no brainer. But we often see managers who cannot really explain 1) what they do versus the rest of their asset class and 2) why they have a unique theory of the case. Some of this undoubtedly stems from the last?15?years of?super low interest rates?and a relatively easy?fund-raising environment. All the allocators: "Line go up! Bigger denominator!" All the managers: "Money is free! Give us some more!" ?

It is totally fascinating to me how few managers are interested in the entire portfolio that we manage, and most cannot assess where they fit and how they would add value for us. Understanding your fit or how you complement current holdings is a solid start into taking over an incumbent’s position.

We also see a lot of investment decision-making teams that have highly homogenous thinkers – same schools, same backgrounds, same gender –?and?have little awareness of the risk of groupthink at their managing director level. To be quite clear: this type of team has a much higher potential to produce both inferior returns and some of the worst risk management stats. We’re not interested in getting burned here again (I wrote a little bit about the portfolio?we started with?here and some of the work that went into adjusting it to be a better fit for our values). You should be ready for questions about how your special sauce incorporates avoidance of group think.??

#4 Show up as true thought partners ?

We have some outstanding managers that check all the boxes above and go several steps beyond. I have a limited budget and, frankly, some of the analytical tools, particularly those where we’d need to subscribe to usurious benchmark purveyors, are just out of scope. I’m tremendously grateful to our partners who have helped us with complex assessments of things like our overlay rebalancing program and super granular portfolio exposures.

It’s so, so helpful to have managers I can just pick up the phone and bounce off?ideas like?an economic scenario, a risk management plan, or some harebrained scheme of a new investment vehicle in a space that’s comfortable and interesting. I know all managers are in this for the fee income and carry to make the math work, but we deeply appreciate those of you who are also intellectually engaged.??

At the end of the day, the best managers understand the most basic of facts: both of us are seeking a long-term relationship. We’re ideally investing with your firm for at least a decade, and that means we’re investing in a decade of spending a lot of time with not just your investment strategy and results, but with you, your staff, your investor relations (IR) team, and your reputation. Our best long-term relationships are the ones where the senior leadership practices and models long-term, non-transactional relationships with their staff, clients and external relationships.??

Together with the managers in our portfolio, our job is to create assets that can be invested to help make Minnesota a more just and equitable place where all people and communities can thrive. If you’ve followed the news here over the last several years, it’s clear we have some big work to do here in Minnie to get this place closer to our vision for what it can be. As the largest community foundation in the state, the Saint Paul & Minnesota Foundation has some of the best partners, the most engaged donors and staff, and real convening power with non-profits, the public sector, and the business community.??

Managers, are you ready to invest in a long-term relationship? Do you understand how important your role in that relationship will be? Does this inspire you and your team? My team and I are fortunate that we have the time and patience to wait for the right fit.??