Not marketing performance is a very hard concept for the industry to grasp. Some people just can’t get there, regardless of the logic. And the logic is hard to refute.
I want to let that sit out there for a bit and let the chorus of “buts” die down. When I confront the industry with this logic, the discomfort is palpable. I am not joking. People get verbally abusive, walk out of rooms, go red in the face, etc. I understand. I also get mad when I have invested a great deal of time in a given position, only to find out that I am wrong. People within the industry have spent 30 years convincing themselves that performance is all that matters. Shifting away from that is going to be tough.
The reason why it is so hard to shift away from marketing performance … because it used to be the right thing to do. That’s the rub, the tension, the hard thing to rationalize. Twenty-five years ago, hedge funds and private equity funds were delivering returns that were previously unimaginable. The story was their performance.
What happened? Well, 40,000 funds happened. Today, the return profile offered by alternatives is a homogenous product. Sure, you are proud of the 13% you have delivered, obviously accounting for risk. Give me three minutes and I can probably find ten teams delivering a higher return for lower risk. You are nodding in agreement, aren’t you?
It is here the divide happens. There are those of you out there that chuckle at my naivety, believing that performance rules all, and will always rule all. Yet, sh$# happens, and on occasion you underperform, right? Do you give the money back? Heck, you didn’t deliver what you promised your customers? No, you don’t. Therefore, best jump on your website, screen for the word integrity, and replace it with something a little more accurate.
Let’s all just acknowledge that your performance has to be good enough. If this weren’t true, 95% of those that receive allocations in a given year, wouldn’t.
First things first, it is important to understand that I am not saying performance isn’t incredibly important. I am far from naïve. Simply recognize that you can’t hide your performance. It is right there and will always be right there. An investor isn’t going to “miss it.”
Ok smart ass, what do you build messaging and marketing around? Instead of marketing performance, you want to build positioning around the firm attributes that generate your performance. Do you have incredible AI, a great bottoms-up approach, super human operators, a differentiated way to think about portfolio construction, etc. These are the things you want to talk about. Why, because you can guarantee your audience that you will always deliver on your promise to provide them. What you can’t promise is that you will always deliver performance. The world is a crazy place.