Performance or Integrity...You Only Get To Pick One
I'm going to throw a punch.
You can choose to take the punch, shake it off, and be wiser from the experience, or you can swing back. I am good either way.
Here goes. In the world of asset management nobody can 100% guarantee performance. Therefore if you “claim” to have integrity, when meeting with investors, you really should lead with:
“There are countless things that could happen, over which I have no control, that could result in me losing a good portion of your money… like a lot.”
I know what you are thinking, “The investors we talk to are sophisticated, they understand the inherent risks, we don’t need to dwell on them.”
That’s the underlying issue.
The sell side downplays the inherent risks of investing (all the while talking up capability) to such an extent that the definition of integrity has been stretched to the breaking point. I am here to tell you that it has snapped. Disagree? Call CalPERS.
“So smart ass, what’s your solution?”
A well deserved, and well placed counter-strike, but I am used to getting hit.
When performance dips, what happens? You quickly pull out the box filled with all the “other stuff.” That box, that’s called your brand; the stuff in it, your brand attributes. If you dig around a bit, that’s where you will find your integrity.
When meeting with investors, lead with your brand and talk about your brand attributes. Don’t worry about peacocking about your performance. It won’t be overlooked, trust me.
It is easy to stand in a room and point out how good you are. That doesn’t demonstrate integrity, nor does including the word in your marketing deck. Integrity only appears when things go wrong. You can’t say you have integrity; you have to prove you have integrity.
If you want to impress an allocator, create a video of LPs talking about how you responded during the largest draw down on record, or your actions when a portfolio company blew up. That’s meaningful.
Allocators are tired of listening to managers talk about how good they are, only to watch them scramble when things go wrong. If you want to earn their respect, walk into a room, talk about the dumbest thing you ever did and how you fixed it. Bring your assistant and let him or her talk about the morals and culture of your firm. Those are the intangibles. That’s what makes you different.
If you leave a first meeting without ever using the word “performance” you will be on your way to earning an allocator’s respect, and that’s the fastest way to get their money.
By Kyle Dunn