Often when we ask fund managers to define their target LPs, they depict these completely dispassionate, machine-like people, devoid of emotion. It’s as if they think the ‘institution’ is making the investment decisions based on a totally formulaic process to capital allocation – as opposed to people that leverage experience and investment acumen; people whose judgment is often guided as much by their opinion and “gut” as facts and numbers.
Anyone that has taken behavioral psychology 101 knows that most decisions – particularly buying decisions – are consciously or subconsciously influenced by emotion. And while it may be reasonable to think that an institutional investor’s decision process is more evidence-driven, it would be naïve to think that emotions and opinion don’t also play a role.
As my colleague, Matthew Craig-Greene speculates, when it comes to evaluating a ‘qualified’ fund (a fund that meets an investor’s mandated criteria for consideration), it’s likely that investors often process information the exact same way as consumers – they start with their opinion or preconception – and then look for the facts to support that opinion – not the other way around.
In other words – the decision comes first (or at least the bias toward a decision) – based on a feeling or gut instinct.
What does that mean for a manager that is trying to raise money in an industry where its products are ‘bought not sold?‘ It means that you need to create a reason for an investor to care about you. It also requires being memorable and top of mind. After all, it could be months or years before they decide to allocate to your strategy or asset class.
And the best way to stay memorable…stay in front of them with memorable information over a long period of time (and of course, the fund still has to perform).
The goal is to stay top of mind so that when they are ready to allocate to your strategy, their instinct is to think of you. And not in the passive, “maybe we should consider those guys” kind of way – but in the jubilant, “let’s get on a call with [insert your fund name here] asap” kind of way. It’s like a race where one person gets a running start while everyone is at a standing start.
If you really want to change the trajectory of your fundraising, giving yourself a running start is never a bad thing.