Hedge Fund Managers Have To Think Like Amazon

Oct 24 2017 | 5:56pm ET

Editor’s note: Hedge fund managers need to understand the expectations of today’s Amazon-conditioned consumers if they want to grow their businesses, explains Harvest co-founder and CEO Peter Hans in this contributed article. Change is often a four-letter word at many alternative investment managers, but those who fail to adopt a more customer-centric model risk being eclipsed by a select group of managers who can deliver a superior experience.

Hedge Fund Managers Have To Think Like Amazon
By Peter Hans, Co-Founder & CEO, Harvest

Hedge fund managers looking to grow their businesses need to embrace the expectations of today’s Amazon-conditioned consumers – who double as asset allocators. 

Amazon has succeeded by prioritizing the needs of the customer. They are able to do so by better understanding what customers want, when they want it, and even what they will want in the future. By anticipating customer needs, they are better able to align incentives and deliver a superior experience.

The majority of alternative managers, long hesitant to embrace change, have become at risk of falling behind a select few. A customer-centric model is now a requirement.  Below is an implementation roadmap. 

Client Experience – A High Bar

Amazon’s engaging user interface allows its database to aggregate massive quantities of behavioral data on its customers. By understanding who its customers are and comparing  behavior to similar individuals, Amazon is able to offer proprietary value while better aligning incentives: “Frequently bought together” and “Consumers who bought this item also bought” suggestions come time mind in this regard.

With this high bar set, when these same consumers are in the market for other products and services, they are increasingly demanding excellence on price, selection, quality, delivery, problem solving, content, clarity and ease of use. How often do you find yourself frustrated because a workflow of yours cannot be executed as easily as online shopping or binge watching Netflix?

These same frustrations are felt by asset allocators. The same expectations around efficiency and relevance are already in place for alternative asset managers.

Client Expectations - Adopting A Mindset

From any angle, marketing and investor relations are simply too important to an hedge fund manager’s business to continue treating it as a ‘check-the-box,’ status-quo requirement. The average asset management firm spends 13% of its top-line on marketing but how many actually analyze the effectiveness of this spend? Unless managers have no interest in growing their business, they need to apply the same attribution analysis to their marketing and IR efforts as they do to their portfolios. 

A landmark AIMA survey of hedge funds found that managers see “knowledge sharing” as second only to “long term partnership” when considering alignment of interests with investors and prospects. From the allocator perspective, this communication needs to be relevant and efficiently delivered, but how does a manager share knowledge if he or she doesn’t understand if, when, how and to what benefit investors receive, use, share and value that knowledge?

Hedge Funds Thinking Like Amazon

All communications between a manager and client needs to be viewed as content marketing. It’s an opportunity to add value and educate the client while accruing benefit and trust back to the manager. These communications can be developed from tangible data, their results can be measured, and future iteration can add levels of client/manager trust that transcends near-term performance concerns. There is no denying that stronger relationships lead to higher perceived utility, and over time higher utility means stickier clients and larger allocations. This all means growth for a manager’s underlying business.

Delivering In Five Steps

Transitioning from reactive to proactive digital engagement is a big leap for many managers. But while it can be daunting, it is also paramount to growth and even survival. Reactive marketing and IR serves only to limit damage, or play defense. This is fine if everyone else is just playing defense too, but market leaders are now also playing offense. They understand that client experience matters, and here’s how they do it in five simple steps: 

1. Establish Goals 

Before focusing on what they will implement, managers must first ask themselves what they are trying to accomplish. This can be to strengthen relationships with existing investors, attract new capital, establish brand equity to make the sales process more efficient, or launch a new vehicle that might fall outside the manager’s established brand. Understanding your audience, what they value and applying that knowledge will make it easier to achieve these goals. 

2. Assess Your Digital Presence

The first form of manager due diligence by an investor, prospective employee, vendor or partner is Google. Managers should identify and define what they want to be perceived as and then honestly compare that to what a potential client would determine. If these match across all relevant channels, great, but if not...

3. Plan for Digital Engagement 

Any digital plan should be executed in the context of a sustained brand strategy, marketing and IR plan. Managers must decide on the types of content that are relevant to their goals, the distribution plan (where, when, how…) and the compliance considerations. Finally, how will these communications be measured in a manner that is directly tied to the initial goals?

4. Implement & Measure ROI

Once a manager starts to implement its plan it becomes paramount to actively measure, review and iterate based on the data. These measurements can be quantitative or qualitative, objective or subjective, long-tailed or relatively immediate. The important thing is to ensure that the data is relevant to the originally established goals, that it is being honestly reviewed and that future decisions are made based off the data. Over time this will allow a manager to establish a framework where ROI can be accurately defined and more easily realized.

5. Feedback & Nurture Engagement

Digital distribution and data analytics can tell a manager who, what, where, when and how. Today, AI and machine learning technologies also offer managers the ability to discern ‘why,’ and more importantly, ‘what’s next.’ Just like Amazon, a hedge fund manager can be able to predict the future behavior of the client based on their interests.

It takes a lot of effort to scale a hedge fund business. The competition is greater than ever, and older methods of business building through analog relationships and pure performance offer zero room for error. By focusing on client experience, managers significantly increase their chance at success over their competition. Without this concerted focus, there is little ability for an asset management firm to expand. Managers have been presented with a choice, but with the exponential rate of technological change this choice is now a mandate for survival.

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