Newly Added 15 May 2017

By Diane Harrison

The mindset of “I’m OK, you’re OK” endorsed by today’s progressive parents who aim to reward their ‘precious snowflake’ children for every endeavor regardless of outcome  is a dangerous one to contemplate in investment management. In contrast, meritocracy is alive and well in alternatives. There are most assuredly investment winners and losers, and they are here to stay. Managers must not fall victim to the mentality of ‘good enough’ if they hope to attract and retain investors to their cause.


Successful investors are definitely not helicopter parents. They like winning and fully subscribe to the notion of rewarding alternatives managers who can deliver results. Investment management winners by and large try harder, do better, receive more, and keep moving forward. Losers join the ranks of the ‘once was,’ and find something else to do in relatively short order. Managers who want a greater flow of investment assets might take note of the following suggestions to avoid becoming an investment ‘snowflake.’


Performance counts. Practice performance is not the same as performance under pressure. Ask anyone who has taken practice exams with ease, only to crack under the pressure of delivering similar results when scored. Unfortunately, there are no ‘do-overs’ in finance. Monies lost are monies gone, period. For struggling managers, climbing uphill from a steep performance decline is an arduous and often lonely exercise, as investors jump ship and move on to greener pastures, literally,

Establishing a strong and comprehensive risk management process that works in tandem with a solid investment management strategy will help protect managers from unnecessary volatility fallout. For those managers developing a new strategy approach, work out the investment kinks with personal capital before committing precious investor capital to real-time market vicissitudes, and avoid the redemption threat inherent in such action.


Add differentiated value. Establish a clear market point of view that delivers value to your investors, and make sure your investment practice mirrors this strategy. The alternatives markets are littered with the corpses of fund managers who said one thing to investors and proceeded to do an entirely different thing with their fund assets. If you are selling your fund as an event-driven equities play, then be sure the portfolio actually comprises firms whose values have substantially changed though identified events or are on the cusp of such events occurring. Don’t be the fund with 75% of your client’s assets sitting in a money market for months or years, awaiting the next ‘great opportunity,’ all the while collecting fees of 2 and 20 for this privilege of earning next to nothing.


Enough is not enough. Dr. Jean Twenge, author of “Generation Me,” made an observation in her book that seems simple yet profound. Using data from 11 million respondents and studying an increase in narcissism and entitlement among college students, she noted that children who grew up in the era of participation trophy overload believe that to succeed; you just have to show up. When they reached college, those who were raised receiving these meaningless awards do the requisite course work, but don’t feel a need to excel. And by the time they get to the workforce, they believe that attendance is all it will take to get a promotion.

Let’s be very clear: just showing up is not enough for any money manager to believe they are qualified or equipped to handle investment assets for clients. If a manager doesn’t feel the pressure to perform and the humbleness to know that the markets are a merciless taskmaster to those who expect to win every time, then that manager isn’t equipped to manage outside assets for a living. Investors are entitled to a manager who is fully devoted to doing their best day after day.


Turn the tables. The entrepreneurial world is filled with success stories of perseverance. Most people recognize Thomas Edison as one of them. He spent his youth being fired from many varied jobs, including a telegraph company at age 21. However, Edison never strayed from his commitment to inventing. Over his storied career, Edison obtained 1,093 patents.  His contributions to technological development are legendary, but his dedication to learning, from both his successes and his failures, is one of his greatest achievements. Imagine if he’d quit trying to improve his inventions after one or two failures?

Money managers who have lasting impact share Edison’s traits of fortitude and introspection. Learning from past mistakes often teaches greater lessons than compounding successes without understanding what created the result. Investors who seek truly great investment partners want to find those who have adapted, refined, and improved their money management skills through hardships. They understand that these are the professionals best suited to react and adapt to the future challenges every market eventually presents.


Balance risk with reward. Last August, the Kauffman Foundation released a study called Making a Successful Entrepreneur. The Foundation surveyed 549 founders of successful companies in high-growth industries and found four key factors that influenced the success or failure of startups. They were “prior work experience, learning from previous successes and failures, a strong management team, and good fortune.”

A key take away from this study in identifying barriers to entrepreneurial success was named by 98% of respondents. They cited a lack of willingness or ability to take risks. Distinguishing a calculated risk from a foolish one is a critical skill for entrepreneurs, a trait shared by alternatives managers as well. Despite the popular progressive model for raising today’s ‘precious snowflake’ children, managers don’t get a medal for participating. Investors do keep score, and there are always winners and losers.

 Diane Harrison is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 specializing in alternative assets.  She has over 25 years’ of expertise in hedge fund and private equity marketing, investor relations, articles, white papers, blog posts, and other thought leadership deliverables. In 2016, Panegyric Marketing has been shortlisted for Family Wealth Report’s Outstanding Contribution to Wealth Management Thought Leadership and received AI Hedge Fund’s Outstanding Contribution to Wealth Management Thought Leadership, M&A’s Excellence in Financial Services Marketing Communications – USA, AI’s Innovation in Alternatives 2016, Wealth & Finance International’s Best In Funds 2016 – US and their Women in Wealth Awards Best Financial Services Marketing Company – New York, and Investor Review’s 2016 Fund Elite Award’s Most Innovative Financial Services Marketing Firm USA.  A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. To read more of her published work in alternatives, please visit www.scribd.com/dahhome. Contact: dharrison@panegyricmarketing.com or visit www.panegyricmarketing.com.


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One Comment

  1. Brad Case, PhD, CFA, CAIA
    May 22, 2017 at 9:44 am

    Hi Diane,
    I so very much wish it were true that “losers join the ranks of the ‘once was'” in alternative investment management. Just consider what we see in the real world:
    (1) Hedge funds, as a category, cannot point to an extended period during which they outperformed a simple mix of stocks and bonds, yet hedge fund managers have continued to earn enormous compensation and have only lately begun to face asset outflows.
    (2) Private equity, as a category, cannot point to an extended period of outperformance relative to a public market equivalent–that is, an investment in a similar group of publicly traded equities using a similar amount of leverage–yet private equity managers not only have continued to earn enormous compensation but they actually continue to see asset inflows and continue to be regarded as successful.
    (3) Private real estate, as a category, has amassed a truly remarkable record of underperformance over nearly 40 years relative to their public market equivalent–an empirical record of failure that should have caused their entire category to “join the ranks of the ‘once was,'” yet that hasn’t happened either.
    Managers in hedge funds, private equity, and private real estate have “managed” to find the sweet spot where they under-report risks, their investors willingly believe it, and therefore managers don’t merely get a participation trophy–they get rich, too.

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