Substance Over Form

Substance Over Form

By Diane Harrison

In the final months of 2018, a mid-term election year here in the U.S., rhetoric is forming and tempers are soaring as candidates try to create narratives that suit their political objectives. It calls to mind the phrase “form over substance,” where what is said often bears little to no resemblance to what is actually happening.  It feels like we never got past the 2016 election, yet here are the midterm seats up for grabs.

I’d like to offer a cautionary message for the investment conversations also heating up in this fall of 2018, and suggest that ‘substance over form’ is a far better approach to take with investors. When it comes to parting people and their money, they tend to care a whole lot more about what you will do with their investment than what you might say.


In the accounting world, the concept of “substance over form” entails the use of judgment on the part of financial statement preparers to ascertain business sense from transactions and events and to present them with the truest value. The label attached to a transaction, such as a loan, a commission, a sale, etc. is not the primary driver of the economic value that such financial statement preparers arrive at in their deliberation. The substance of the outcome or result of such transactions will ultimately determine what their recorded value will be. Thus, ‘substance over form’ reflects the economic valuation of transactions and events recorded in financial statements rather than their label to depict a fair view of the entity.

Relating to investment management, the ‘substance over form’ approach to winning over investors follows a practical and simple route. If managers want to move investors to their side, best to offer them actual accomplishments and descriptions of investments made and results earned. This can work particularly well with alternative assets. These types of investments are varied in structure and often less well-understood by investors versus simple debt and equity offerings.


We’ve all been unhappily subjected to a business meeting where the focus centers on an individual or individuals caring more about how something appears than how something actually gets done. That would fit the general definition of an ‘empty suit’ conversation: one in which the anticipated outcome is unlikely to yield any satisfying action, and no game plan is established to accomplish much beyond the initial discussion.

A fundamental investment rule is to understand how an investment makes money. The corollary to that rule in selling an investment concept; explain how that investment can make the investor money. Hedge funds should be presented to investors as an alternative means of accessing familiar asset classes. Similarly, private equity investment can be described as an ownership interest in a company which is not traded on the public market. Private equity can take several forms: it can be used as an investment in startup companies, mid-growth stage companies, or used to fund a buyout of a distressed company in order to reengineer its operations to sell at a profit.

Managers can bring their strategy to life for investors through showcasing actual investment examples they have identified, managed, and sold in order to bring clarity and an investment vision to such concepts. Two or three short paragraphs setting out what attracted the initial action to be taken by the manager, how that holding was managed or improved within the bounds of the investment strategy, and the impetus for the exit of it: what was final result to the overall portfolio? What circumstances caused the action? What came next?

A hypothetical framework from which such an example could be developed might include the following:

  • Investment Strategy: Identification of event-driven equity holding in companies undergoing balance sheet activities likely to generate near-term valuation issues.

Build out: We found company X, which was undergoing a hostile takeover that was causing A, B and C.

  • Investment Management Action: Identify liquid opportunities that have quantifiable events pending and valuations that offer upside potential with attractive risk parameters over specific time periods.

Build out: We determined that, within the next 6 months, the following scheduled legal actions, X, Y and Z, would lead to A and B for the firm’s balance sheet strengthening.

  • Demonstrated expertise and continued pipeline of opportunities: The manager should have these skills, or a team with these skills, to operate today and going forward with additional capital as their fund size increases.

Build out: Because of our extensive prior background in sectors A and B, combined with our nationwide network of strategic connections spanning the global development in sectors A and B, we see tremendous growth opportunities ready to be exploited at the proper time and with capital allocations.

A simple conversational tone and flow can do more to spark an investor’s interest in a particular strategy than dozens of dry research charts, graphs, or statistics underpinning such strategy approaches. These types of examples can also lead to a real conversation with prospective investors instead of a recitation of facts and figures aimed at a prospect rather than a dialogue that is inherently unique to their interests and questions.


Creating meaningful examples of investment accomplishments that reinforce aspirational commentary sounds obvious, yet often gets overlooked in the sales process. Investors are responsive to these types of case studies because they offer context and individual personality to a crowded and competitive investment management smorgasbord of options. Try a few examples in your next meeting and see if your investment management message resonates louder than before.

 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

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