GemCap founder Stuart Alexander on whether “independent distribution partner” is the new “third party marketing”, on managing expectations between investment managers and TPMs (or IDPs), and the importance of good communication on both sides.
I recently met up with some forces of nature in the UK and European fund distribution space, namely Malcolm Arthur and Justin Eede of Spring Capital, two individuals I have known for 26 years as we worked together at Invesco following the acquisition of GT in 1998, where they were both working. Over the years our paths have crossed at many events, and I have always admired what a successful business they have built with a very select number of quality managers. Their asset raising has been awesome and the success they have achieved is a credit to them and their team.
As usual in these situations, the conversation naturally turned to the challenges and the opportunities in the marketplace for investment managers when it comes to raising assets. As a director of a firm that has been involved in the whole third-party space (thinking there was nothing new to learn!), I was surprised to learn a new acronym: IDP or Independent Distribution Partner. Justin and Malcolm are on a mission to introduce this new three-letter acronym to replace the current commonly used ‘TPM’ or (third-party marketing), one as they believe the expression has become tired and is tarnished. My interest was piqued as to why they felt this way, and as someone who never shies away from a good conversation, I enquired further. Shortly it became apparent why they were on this mission.
In short, I believe it boils down to the “management of expectations” on both sides between the investment manager and the TPM/IDP. I have had numerous conversations over the years which always result in a regular moan from investment managers about external sales operations and also their own internal sales teams. Long experience working within asset managers before GemCap has taught me to deliver a simple message to investment managers: the truth. Distribution and investment management is a partnership after all, and mutual respect is required for it to work effectively and efficiently. The other day I met a now-retired legend of distribution who told me that when his former investment management employer asked what was required, he replied that he wanted the sales operation to be respected; for them to ask how, where and when and not why. Hard words for some to accept but necessary if the partnership is to work.
Sales people are, as we know, wired differently from portfolio managers and will sometimes rub each other up the wrong way unless sales are piling through the door – and then a different mindset builds… was it sales or just good investment management that brought in the assets? Once that thought sets in then it can be a slippery slope to a breakdown in the relationship and ultimately firms part ways. So how to overcome this potential inevitability?
The simple answer is for an IDP to provide a service that is better than an internal sales team would or could ever produce. “Better” is subjective but it can be anything from cost per $/£ raised, regulatory costs, contacts known or more channel and geographical coverage for less cost. It can be enumerative and at times challenging to demonstrate the added value of outsourcing your fund sales, but quality reporting is where true value add can be seen to be made – quantitative and qualitative. Giving feedback is also vital so that investment managers know what is going on, particularly in the early days of the relationship when you are building trust and getting them on board with what you are doing.
Equally, it is critical that an investment manager provides regular updates. Not just factsheets (yawn!) but timely, relevant and concise words of wisdom. On previous blogs I have talked about “owning” the space and that is still as relevant today as it has always been. As an investment manager you need to make sure fund buyers see you as experts and a firm that is the first port of call when it comes to the asset class or strategy that you work in or are promoting. These days video content, podcasts or webinars are the more acceptable form of getting messages out there and there are many ways of doing it. Using OCTO Members is an excellent route to take if you want to get in front of a wide range of fund buyers. Equally, doing your own updates to camera is cheap and effective these days and is a very acceptable way of getting that message in front of your audience. Clearly press articles and contributions work a treat so focus on one or two journalists in the trade press of the market you are targeting. Citywire covers lots of markets and International Adviser or similar publications target the wealth space. Equally Bloomberg and TV channels such as CNBC and Asset TV help you get in front of a wider audience. Whichever route you decide to take will only enhance your position in the marketplace. It’s not easy and takes some guts but ultimately you will benefit.
In the end a good IDP or TPM will get you in front of the right people and will create the right continuing engagement between you and the investor. Investment managers must play their part and as long as they are getting the feedback and hopefully the sales, with time the results will justify the expense in money and time. After all, it is a partnership with a shared common goal: success!
