Too intelligent to fail: How thought leadership defines fund management winners
Thought leadership is one of the most abused terms in asset management. Its role is critical to the future of the industry, particularly for active managers. It will help define who wins and who loses as the competitive landscape shifts. Ultimately, it will determine who becomes too intelligent to fail.
Investing is an inherently long-term game: I sacrifice today because I know I will need money tomorrow. But tomorrow is a foreign country. They will do things differently there.
As a saver, I am more likely to trust my money to someone who can demonstrate that they have thought intelligently about what tomorrow might look like, and what will or won't make money in that new world.
Tomorrow is a foreign country.
They will do things differently there.
As an industry, investment managers have to earn that trust. It cannot do this by leveraging the safety of hindsight to report on what happened last month. That’s not what people are paying for.
By looking forward, by reassuring clients that a manager has thought five, ten, thirty years down the line, they won't just attract money, they will attract the right kind of money: intelligent money that's in it for the long term. Why? Because that makes it ‘sticky’ money.
Any investment manager competing to survive in an industry that is rapidly reshaping and becoming more competitive, needs a loyal client base. These are the kinds of clients that will ensure a firm thrives in the future. And, by thriving, those companies can deliver the kind of future its clients also desire, regardless of whether they measure that success in financial or more holistic terms.
Loyalty is not bought with performance, oddly enough. Yes, there are funds that outperform year after year after year. But the people who ‘buy’ the performance, are usually the first to flee when the manager has an off year.
By contrast, those who buy the story behind the manager, that share her view of the world and where it’s going, will be much more likely to stick it out when the going gets rough. And so the narrative becomes a critical component of sticky money.
Every investor, professional or no, develops a narrative over their lifetime. This is the culmination of their own education, experiences and learnings into a world view. And, where someone or something challenges that narrative or moves it forward, it becomes ingrained in our understanding of the world. Put simply, you don’t always remember every article you read, but you are more likely to remember the ones that make you think: “Oh, I hadn’t thought about it that way.” And you’re more likely to remember who it was that posed the challenge. This creates brand loyalty.
Thought leadership must be about intertwining long-term investment stories with those of savers – educating them and challenging their world view so we can all progress towards a more enlightened future.
This is fundamentally important to the future sustainability of the investment management business. Fund managers have to demonstrate their ability to look forward in an intelligent way.
It doesn't mean they always have to be right. That's impossible, but you get a lot more leeway from people if you’re intelligently wrong rather than naively wrong. In the fund management business there is no excuse for the latter.
The narrative is a critical
component of 'sticky' money.
The industry is uniquely placed in terms of the access, resources and the capability to deliver genuine thought leadership - at least it should be given how much it charges for its services – and it has an absolute unequivocal responsibility to do so.
Asset management firms are the stewards of the world's capital. That puts them in a highly privileged position and gives them a power of influence on economic, social and environmental outcomes that far supersedes what any government can achieve. Money ultimately makes the world go round and fund managers ignore that privilege at their own peril.
The firms who embrace this idea of genuine thought leadership will be more likely to survive the bumps in the road ahead. They will, in essence, become too intelligent to fail.
So before you post something that you think is ‘thought leadership’, ask yourself:
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A quick cuppa with Faith Ward, Chief Responsible Investment and Risk Officer, Environment Agency Pension Fund