Building a loyal audience is pivotal in marketing hedge funds and private equity funds. The more loyal the audience, the more re-ups and less redemptions. The best way to raise assets, is to keep assets.
Let me digress for a moment. Why does someone buy a BMW when the new, comparative model of Mercedes is better. Because the individual is loyal to the BMW brand – what the company stands for, how the association with the company makes them feel, and the recollection of a good experience. They aren’t willing to abandon BMW because of a blip.
If you are an alternatives manager, this should resonate. The big question, what are you doing to build a loyal following? Are you continuously talking about performance? Can you guarantee your performance? These are big questions to think about. The answer… you can’t build a loyal following if your messaging is overtly focused on something you don’t always deliver.
Look I get it, if you are a hedge fund or private equity fund you have to perform. BMW, as a brand, has to perform. Performance is a quintessential attribute of their brand. If the vehicles aren’t impressive, the integrity of the BMW brand breaks down and the company will cease to exist – in its present form.
That said if you are a fund manager, and you only talk about percentages, it is too easy to objectively compare you to your competition and objectively rule you out. It’s not sticky. Attempting to build loyalty around performance is a dangerous game. Why? Because there can only be one winner and you can’t build much loyalty around, “we are good enough,” which is where most end up.
BMW promotes themselves as providing “the ultimate driving experience.” They often feature the sound of their cars in their marketing. It is distinct. Customers buy BMWs because of what they sound like. Is the sound of a vehicle part of the “ultimate driving experience?” Sure. Do BMWs sound better than Mercedes? It is an interesting question, isn’t it? (As an aside, have you noticed that the new Mercedes have a deeper throatier sound these days? I wonder why.)
If you are marketing an alternatives product, think about big things that you can build around that aren’t purely objective. An example, “We are responsive.” Are you the most responsive? Maybe. Are you more responsive than most? Absolutely. Does your responsiveness change if your performance bounces around? It doesn’t have to. You can always be responsive. You can’t always control your performance.
If you build your story around investment performance, what do you say during a blip in that performance? Do you give the money back? No, you start talking about risk, volatility, blah, blah, blah. It comes across as disingenuous. And honestly, at that point, it is too late. On the flip side, if you have built your story around responsiveness, as an example, ideally the LP is thinking, “The performance isn’t that great right now, however, these guys are phenomenal to work with and I like that.” You now have a fighting chance to keep the money or close the re-up.