Make Hay While the Sun Shines, or When Emerging Managers Get Investor Attention (First in the series of Blayn’s Quotable Quotes)

BY BLAYN BARNARD SMITH

I’ll start with the basics here:

Harvesting grass to roll into bales for storage is obviously easier to do when it isn’t raining, so folks work long hours to bale hay when the weather is nice. “Make hay while the sun shines”, loosely translated, means “don’t waste an opportunity”.

If you’re an emerging manager who is fortunate enough for the stars to align over your new firm – your performance is strong, your team is working well together, your current investors are happy, and you’re getting attention from prospective investors – you may be experiencing such rapid growth that it’s difficult to stay organized. Understandably, you might let some seemingly unnecessary tasks slip through the cracks.

Let’s take the case of Portfolio Manager “A”. He’s an intelligent, thoughtful long/short manager with a differentiated, well-articulated approach. For the first three years he managed money, his returns were outstanding, word spread, and investors sought him out. His strategy was capacity-constrained, and he pledged to his original investors that he would cap the fund at a certain AUM threshold. Once Portfolio Manager A reached that threshold, he stayed true to his word.

He continued to produce strong returns, but after closing the fund, he no longer scheduled calls or meetings with prospective investors. He directed his attention and resources entirely toward the research effort. He and his small team didn’t bother with tracking inbound calls, much less learning more about prospective investors’ approaches and portfolios.

Eighteen months after he closed, it happened: one of his largest investors hired a new CIO. The new CIO wanted to put her mark on each allocation and, unfortunately, decided to fully redeem. Six months after that, PM “A” hit a rough patch and experienced a fairly significant drawdown, and although virtually all of his investors were still above their high-water mark, several more redeemed.

Now the fund was below its cap, so PM “A” decided to open to new investors. Guess what? Since they hadn’t memorialized inbound interest or kept in touch with prospective investors, they were starting from little more than scratch. As much as we all want our prospects to believe us when we say that a drawdown presents a great entry point, it’s a difficult hurdle for allocators, particularly if you’ve been inconsistent in communicating with them. Although he continued managing a much smaller fund, the glory days were over.

You may think that you’d never be so stupid. I’ve met thousands of managers and thousands of investors, and you’d be surprised at how many emerging managers are guilty of some version of the above.

Now the good news: it’s easy to sidestep this pitfall! At a minimum, put in place a scalable process for tracking investor information as early in the life of your firm as possible. Although a spreadsheet is basic, it’s a place to start. You can always seek out a more sophisticated solution later. Be sure to track contact information and key takeaways about the investor and his or her portfolio. Who are the underlying stakeholders? What are their objectives? Do they have biases for or against certain allocations or strategies? For example, if you discover in your conversation that they prefer liquid holdings or love getting involved in venture, make a note of it. If possible, connect with everyone you meet on LinkedIn so that you can stay in touch if someone changes firms. You can create voice notes on your phone immediately after a meeting or call, then hire a college student or your high schooler to transcribe into a spreadsheet or database. Consider adding prospects to your quarterly letter distribution list in order to stay in front of them. Above all, be consistent in memorializing investor information.

“Make Hay While the Sun Shines” is a call to action. Don’t waste opportunities with investors. They are the lifeblood of your firm.

The Top 5 Pitch Book Mistakes

BY BLAYN BARNARD SMITH

Let's be honest, few investment managers get excited about working on marketing collateral.

Still, the majority of managers use a presentation, investment memo, or “pitchbook” to showcase their strategy and offering to prospects. The form and length vary widely based on audience, strategy complexity, and manager preference. Some managers believe the written presentation is of little value and place far more emphasis on in-person meetings or calls. However, without a well-crafted pitchbook, you may never have the chance to give additional color in a verbal presentation. Your pitchbook should communicate your value proposition or tell your “story” in a way that is both accurate and casts you and your strategy in the most attractive light. The information in the pitchbook should enable the investor to begin thinking about where you and your strategy might fit within their portfolio.

Now, where can you go wrong?

- 1 -

The first mistake we see managers make is crafting what we call The Podium Pitchbook, which means it contains content that would be more appropriate for a spoken presentation at a conference. Wide gaps in the narrative or bullets that don’t make sense without verbal color often leave the reader feeling confused. Will they pick up the phone and ask you to come down to their office, have a cup of coffee, and engage in a discussion to fill in those gaps? Maybe, but they’re just as likely to delete your email and focus on other compelling opportunities. Don’t take that chance. The pitchbook can and should stand alone to thoroughly yet succinctly describe what you do even when the reader does not (yet) have benefit of speaking with you.

- 2 -

Mistake #2 is failing to get your key takeaways across in the first four or five slides. Always assume your reader won’t take the time to flip through all 15 or 20 slides. Get your important points across early. Too often, managers use several slides to describe market conditions or the market opportunity early in the presentation. In a few cases, this is appropriate, but most managers should create an executive summary that gives a bullet or two on the firm, strategy, objective, and portfolio. Follow the executive summary with these slides in no particular order: the strengths of the firm and approach, the track record, and, in the case of emerging managers, the portfolio manager’s bio. Don’t make the mistake of putting your key takeaways slide at the end of the presentation as a summary, or if you do, make sure you’ve covered the same information very early in the narrative.

- 3 -

Mistake #3 is making your reader expend too much mental effort to interpret charts and graphs. Draw a conclusion for your reader. The point of the slide can usually be made in a sentence or two. The chart should offer supporting data for your statement.

- 4 -

Mistake #4? Too much information. With rare exception, don’t send out a 45-slide presentation. You’re not trying to avoid a due diligence process with a single piece of marketing collateral. The pitchbook should be a fairly detailed overview that effectively showcases your strengths and answers most of the questions an investor would have during an initial evaluation.

- 5 -

Mistake #5: falling victim to the myth of the secret sauce or, in other words, giving too little information. Transparency engenders respect, and if someone can precisely replicate what you’re doing after reading through 15 slides, is it really worth your fee structure? Describe what you do. Don’t be too cautious about providing a reasonable level of detail.

In crafting your presentation, perfection is the enemy of excellence.

We’ve seen managers become paralyzed trying to incorporate every well-meaning friend’s advice into their presentation. Your pitch will never be perfect. Use it, make note of questions you get repeatedly, and consider tweaking to address. The goal of your pitchbook is to capture the reader’s interest so you can progress to the next stage with your prospect.