Asset Raising 101, Part One:Sales

Many emerging managers fail to raise equity to trade. This usually has little to do with whether they have a good product. This is often due to how they approach raising clients.

Before spending time and money to seek clients you should understand your strengths and weaknesses. You also need to realize there are tens of thousands of potential clients out there and thousands of traders looking for them.

You first need to Identify why a client should invest with you. I recommend you look at the literature and web sites of other traders with similar trading strategies for ideas.

Too many traders start their presentation with a track record. My response is so does everyone else. Then they say have a profitable track record. My response then is that there is always someone out there with a better track record. Finally, I get they have a unique approach. When I was allocating, I met with many of these as I was always interested in new ideas.

Facts to Remember:

The established investor receives information from 50-100 traders a year. In an existing portfolio professional investors need roughly 1-6 additional traders a year. Some need none but do keep a list of those they found interesting. Most use logical criteria to cut down the number they review: length of track record, assets under management, and type of investment vehicles offered. At this point investors are looking for reasons to say no.

New investors usually find they have little access to the industry’s larger established traders and tend to be more open to talking smaller traders. Unfortunately, these investors are harder to find. They tend to have little or no public visibility.

Direct sales:

I have met great salespeople who could sell almost anything to almost anyone. They had a gift, everyone liked them and they had a demeanor and style that generated confidence. They are rarer than you think and very well paid by the people who have found them.

Some people are talented enough to handle their own sales. As their firm grows it becomes harder and harder for them to find time for sales.

Direct sales? Not me, I could not give away gold for free. I never made a cold call and did very little direct mail (email today). That did not stop me from obtaining clients. Out of necessity I learned how to market.

Hire a Salesperson:

Hiring an experienced salesperson is difficult. If they worked for another firm in the industry, they may not have an investor list they can use due to a non-compete clause. Salary ranges are high and they usually need travel and entertainment expenses.

Hiring any salesperson is easier. At least try to hire someone with experience in the financial industry.

There is only so much a salesperson can do. They need marketing support. A trader should have a pitch book, a website, monthly updates and a way of tracking leads that shows what literature they have received and their current status.

Representatives, Proprietary Shops, Seeders,

Brokerage Firms, Platforms & Others:

There are many out there who are willing to help you for a price. They include established firms with multiple employees and one-person shops. Some started yesterday and others have years of experience.

Compensation could be monthly fees, retainers, brokerage, percents of revenue you receive or an outright share of your trader through ownership, partnership or just a percentage of revenues.

Some control funds that they can allocate to you to trade. Others may offer direct sales and/or will help you get exposure to clients. Sometimes services like accounting and order handling are part of the package. Others will help you develop or refine your marketing plan and the supporting documentation.

If compensation is based on performance, you need to discuss and settle how you identify an investor they get credit for. I personally had to sort out who got credit for an account that opened that neither the trader nor salesperson knew.

Every contract should have a termination clause that defines how and when the contract can be ended.

Many of these firms, if they are currently looking for new traders, will seek you out if you make yourself visible.

The Client:

The industry has changed over the last 50 years.

For many years there was a small universe of traders, clients, and intermediaries. Direct visits could easily be set up and were usually in Chicago and New York. Today, investors live all over the country. I have been to states like Maine, Idaho, and Montana to meet people.

There has been a substantial increase in the number of investors who are not US citizens. Soliciting these investors may require you to follow their home countries’ rules and regulations. When I ran into this issue and got totally confused, I admitted my ignorance and found someone smarter than me.

Most clients require a meeting with the principals of any manager they are considering investing with. I like to say people buy people.

You are talking to potential clients about investing between fifty thousand and one million dollars. I am startled when a trader sends me literature and it is off a copy machine: no color, no charts. If they are lucky enough to make an investor’s short list, they need literature that looks professional. The traders you are competing with will have it.

And Finally:

Make sure your contact information is on all your literature and e-mail correspondence. Every year, I find fact sheets and web sites that do not have contact information.

I do not understand why firms have good looking web sites that do not provide their principals names and biographies.

Raising clients cannot be done as hobby and is not a part time job. It requires time, resources, and a trader’s personal involvement.