A few years ago, I was on a panel at the Princeton Club in New York. The subject was “best practices in raising assets.” At some point in the meeting, I said to a roomful of hedge fund managers that we should all take a consultative approach to selling our strategies, a suggestion that made the audience bristle. To remind you, the consultative approach suggests the best salespeople uncover the customer’s business problem through effective questioning, diagnose causes and consequences, and recommend solutions that will take away the pain.
But, as I was told, in raising assets for alternative investment strategies, this approach may not work, and in fact could be irrelevant. The problem potential investors have is patently obvious: they want to increase return and lower risk. And, I was told, they will almost certainly refuse to tell you anything about their portfolio of investments, thereby cutting off the possibility of you conducting an empathetic discussion about their business needs.
If this is the case, and I understand it usually is, then our best hope is to tell our story well and respond to their questions with candor. How can we do this so that we increase the likelihood that we can raise sufficient assets in the required time frame?
The Investor’s Point of View
One way is to reconsider asset raising from the investor’s point of view. At the core of the decision to hire a manager is the question of risk. While the investor will certainly have rational business concerns about your track record, performance, team turnover, etc., they might also be concerned about personal risk. After all, the decision they make will reflect on their judgment, and they may be rewarded for the performance of the manager they hire. This is especially true for large institutional investors, where lack of trust can cause them to delay their decision or prevent them from responding favorably.
So in a sense, we are back to a consultative approach to asset raising. The investor has a problem – he is full of skepticism, distrust, and fear. When we meet with him, it is our job to overcome these obstacles and persuade him that we are capable of meeting both his rational business needs and his personal emotional needs for security.
Persuasion
There are two ways to persuade people. The first is by using conventional rhetoric, which is what most executives are trained in. It’s an intellectual process – you build your case by giving statistics and facts and quotes from authorities. It’s what we do with our pitch books. But there are two problems with rhetoric. First, the people you’re talking to have their own set of authorities, statistics, and experiences. While you’re trying to persuade them, they are arguing with you in their heads. They’re questioning your selection and arrangement of the numbers. They’re comparing you to the six other firms they’ve been talking to. And second, if you do succeed in persuading them, you’ve done so only on an intellectual basis. That’s not good enough, because people are not inspired by reason alone.
The other way to persuade people, and ultimately a much more powerful way, is by uniting your strategy with an emotion. The best way to do that is by telling a compelling story – about yourself, your strategy, the founding of your fund, and all the obstacles you’ve overcome, and continue to overcome, as you strive to serve the needs of your investors.
In a story, you not only weave a lot of information into the telling but you also arouse your listener’s emotions and energy. The story you tell about your approach can communicate who you are, where you come from, where you’re going, what you believe, all in a vivid way that will enable your listeners to connect with you.
Persuading with a story is hard. Any intelligent person can sit down and make lists. A standard recitation of the fund’s history, staff, approach and accomplishments may be traditional, but your audience might very well find it repetitive and indistinguishable from hundreds of others they’ve experienced. It takes rationality but little creativity to design an argument using conventional rhetoric.
However, it demands vivid insight and storytelling skill to present an idea that packs enough emotional power to be memorable. If you can harness imagination and the principles of a well-told story, then you get people to truly listen, nod their heads and reach across the table to shake your hand, rather than sitting there slouching toward indifference as you round up the usual facts and figures.
Telling the Story Face-to-Face
The interesting thing is whatever you do in a face-to-face meeting with potential investors, you and your strategy become a story. While they’re listening, they’re telling themselves a story about you. When you leave, they tell others the story of your meeting. You become a story, filed away in their library of experiences.
Cognitive psychologists describe how the human mind, in its attempt to understand and remember, assembles the bits and pieces of experience into a story, beginning with a personal desire, a life objective, and then portraying the struggle against the forces that block that desire. Stories are how we remember; we tend to forget lists and bullet points.
For instance, the traditional pitch follows a predictable pattern, and in fact, most funds will make more or less the same claims about their managers, strategies, processes, and teams. This is a safe approach, but not optimal. Instead, you want to display the struggle between expectation and reality in all its nastiness. Tell the truth, in other words.
Most companies and executives sweep the dirty laundry, the difficulties, the antagonists, the struggle under the carpet. They prefer to present a rosy and boring picture to the world. But as a storyteller, a blood and guts guy who’s out there every day running money for his clients, you want to position the problems in the foreground and then show how you’ve overcome them.
The typical positive, polished pitch doesn’t ring true. They know you’re not spotless. They know everyone slants their statements to make their company look good. Positive boilerplate actually works against you because it foments distrust among the people you’re trying to build trust with. When you tell the story of your struggles against real antagonists, your audience sees you as an exciting, dynamic person.
I was pretty upset with myself when I left the Princeton Club, thinking that I’d demonstrated a lack of understanding of the hedge fund market. But in the end, I think I was right. If you take a consultative approach to raising assets and look at the investor’s business and professional problems, you discover several things: (i) they see a lot of pitches that look and sound the same, (ii) they are skeptics, and rightly so, (iii) the decision to hire a manager represents both a business and personal risk.
In the end, given relative parity between your strategy and others, their decision is about you, the manager. You’re the tire they want to kick. If you dramatize the challenges you face, and tell stories about how you overcome them, you make yourself more real and increase the awareness of your alpha. And that should help you raise assets more efficiently.