Dec. 2019

The Remarkable Similarities Between Marketing and Portfolio Management

I am formally a top-quartile portfolio manager and have designed serval indices tracked by ETFs. Today, I run a systematic, data-driven investor acquisition company packaged as an integrated marketing firm. They are surprisingly similar jobs—a hard-to-verify fact, considering I am one of the few who has robustly and successfully done both. So, hear me out: for starters, both professions require near-identical skill sets. Both jobs involve a lot of processes. Having a great investment or marketing process involves numerous sub-processes that, when successful, are harmonized—for instance, my previous team’s multi-factor model and fundamental research, which mirror my present team’s. Each process must be repeatable and scalable. Both roles are highly data-driven and research-informed, requiring a lot of well-thought-out strategies. Perhaps the most important for both is patience—that is, knowing when waiting for more and better data is the optimal, active decision.


Lastly, in both jobs, we are seeking measurable alpha. The difference in what I do today is that my team is seeking marketing alpha.


You might ask, “Why do good fund managers need marketing at all?” The markets have been good to the industry, raising everyone’s AUM through rising markets (beta). Investment alpha is achieved by consistently beating benchmarks. Marketing alpha involves winning new mandates and/or clients—tasks that require vastly different skills but both lead to AUM. Relying on a rising market thinned much of the asset management herd in 2008-2010—a not-so-distant memory for professional marketers and portfolio managers, as well as asset owners (and their consultants) who had to scramble for liquidity and search for alpha and non-correlated returns. 


A question I’m frequently asked: “Isn’t performance enough to attract new AUM?” Well, we always answer that by saying marketing builds awareness and—when well executed—a strong reputation. If a consultant or allocator uncovers a new (to them) manager in a performance screen, they typically do not take an unknown name as seriously as a brand. How many times does a firm demonstrate strong, consistent performance, only for the world to have never heard of them? The big brands are just that—big brands. If no one knows about you, your firm, or the nuances of your investment process, no matter how much alpha is being generated, few—if any—will take the non-investment risk and allocate. Ultimately, marketing is a facet of performance; when people see informative, thoughtful, and consistent messaging, it bolsters their confidence to allocate, generating more buzz and AUM. 


Both jobs require a strong dose of intellectual honesty.  Continually examine what has worked—both quantitatively and qualitatively. At the same time, look even deeper into what flopped. This may prove more insightful than understanding what was successful. Additionally, knowing what worked two years ago in marketing, as in the markets, may no longer hold true in this allocating environment. 


Marketing as with a trade, be prepared to test before scaling. Test your hypothesis systematically to discover what works—that is, craft multiple approaches, go live with all of them, and let the data demonstrate what is working and what to trade away. Our testing mantra is simple: test, measure, refine, optimize, and of course, report in detail. Ultimately, the goal is to optimize your processes—from data targeting to media to messaging—in order to identify asset owners who have displayed “allocating behavior” (think institutions or FAs) or to directly acquire the investor (think direct-to-consumer). The testing never ends, even with success we know there is one constant: allocators’ preferences constantly evolve.


To that point, knowing how to measure behavior without lots of false positives is critical. Your investor relations or business development team has limited resources. People are idiosyncratic in the ways they engage with a campaign, albeit usually within clusters of typical paths. That’s why it’s important to map out different journeys that prospects can take until they demonstrate allocating behavior—looking at multiple scenarios will reveal a solution for each behavior type. Just as you would when stress-testing a portfolio, consider what’s best to present to prospects, and in what order. What is your desired next action on their journey, and why? As with determining position size, you can set a path for prospects to follow, but ultimately, like market movements, they make their own choices. This may feel out of our control—because it is, and on purpose. Securities don’t move in unison, either, but they can be measured and understood in the context of their industry and sector. It is optimal to systematically message, using precision data to target and measure progress. Some of the best prospects are months away from being ready to allocate with dry powder that can be earmarked for a specific strategy. Allowing them to engage without being called or overwhelmed (until behavior dictates otherwise) increases the probability of allocating success.  

All of this wasn’t possible five years ago. Technology and data science have evolved within both the investment and marketing sides of the business.  We already have the data and technology for advanced marketing, but the asset management industry does not seem fully ready for it. This is only a matter of time. 


By leveraging the right technology, data, media and experience, firms can begin to combine all the essentials—what motivates asset owners, relevant and authentic messaging, and targeted media—seamlessly to deliver measurable increases in AUM.


After all, as an early mentor of mine pointed out, managing only a small amount of AUM using a non-capacity-constrained strategy is a hobby, not a business. Was that advice for managing money or marketing?







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