In October 2015, a scholar at the University of Toronto wrote a paper on what he called the “paranoid style of investment lawyers and arbitrators,” bemoaning an increasingly shrill and belligerent tone in the investment world of late.
If there is such paranoia, one probable contributor, and one possible consequence as well (since reality comes in loops), is that life has gotten more complicated of late for investor relations professionals, with changes in IM brands, the way they are created, and the way client relationships develop over time.
Recognizing all this, the Alternative Investment Management Association has issued a new Guide to Sound Practices for Investor Relations.
Practices and Their Backdrop
According to the CEO of AIMA, Jack Inglis, the relationships between investors and their external managers includes of late “greater knowledge sharing, customized solutions, co-investment opportunities, product seeding and/or equity investing.” Further, the relations develop against “a backdrop of regulatory change and heightened enforcement scrutiny on marketing compliance.”
The Guide is written in as jurisdictionally neutral a manner as possible; in an effort to make it useful around the planet, although of course its authors acknowledge that the planet is a big place so that some “specific regulatory requirements” in particular jurisdictions may “conflict to a greater or lesser extent with what is described in this Guide.” Where that is so, of course, the first priority must be to obey those local requirements.
The Guide explores seven themes:
- The identification and design of new products;
- The search for new investors;
- The conduct of introductory calls, at both the investment manager and strategy level;
- The coordinating and hosting of new prospective investor meetings;
- The management of consultant relationships;
- Networking and attending industry conferences.
At hedge funds, marketing has long come down to a standard list of essential documents: pitch books, tear sheets, and due diligence documentation. But brand building and thought leadership require thinking outside of those particular boxes, starting with a compelling story that management must be able to tell potential investors that will both resonate and distinguish.
The Sales Cycle
The Guide observes that the sales cycle takes 12 to 18 months on average, but warns that it “can take even longer particularly where an allocation is dependent on approval from a gate-keeper such as a consultant.” During this interval, the IR professionals will have to respond in a timely way to the clients’ interests, needs, queries, while managing expectations within their own organization.
The final stage of the process is operational due diligence. The IR professionals play a big role in making this as efficient and effective as possible. As the executive summary of the Guide says, they should “ensure that the team is well-prepared for ODD meetings and [take care to] ensure a complete, timely and thorough follow-up on all outstanding items.”