The firms that established themselves as trustworthy, highly skilled and insightful pre-COVID were the firms generally most successful raising and retaining assets. Those firms were in large measure the first “go to source” for perspective and guidance in the unprecedented situations were are currently experiencing.
When an individual, family office, allocator or institution invests in a manager or fund, it is an act of TRUST. They are essentially exposing themselves to actions, which could, if they go wrong, do significant reputational, emotional and/or financial harm. Some investors may extend trust quickly without a lot of justification simply due to some highly-desired or valued qualitative traits (educational background, pedigree, personality) while others may focus on quantitative metrics (absolute returns, risk-adjusted performance, etc). However, after the 2008 mortgage debacle, an extended period of under-performance by hedge funds as a group, the Madoff incident and now the virus crisis, TRUST has been BROKEN. The result is a pervasive climate of hyper-skepticism and cynicism about active management and hedge funds specifically. Simply, TRUST is now harder to earn, which makes raising assets much more difficult with considerably longer time now required to reach even the minimum threshold AUM in many instances.
With that said, part of the professional responsibility of the alternative industry on an individual and collective basis is to restore TRUST. Every manager/fund, big or small, along with service providers must now win back investor trust by earning it through action, attitudes, philosophy and behavior. The propaganda, empty promises and poor performance must be replaced with proof.
Despite the transactional nature of investing and all the emphasis on quantitative metrics, at the end of the day this is a people business driven by TRUSTED relationships! The personal, social and business limitations now in place due to COVID-19 now make interpersonal connections a valuable commodity. This means that managers/funds that are exceptional at building and maintaining TRUST, will have an important strategic advantage in the acquisition, retention and stability of assets under management.
The ability to establish, maintain and augment trust-based relationships with current and prospective investors must therefore be a central focus of the marketing process. What we have seen in the investment management industry in last 10+ yrs is the result of the absence of TRUST. Without trust, investment management has devolved into a price-driven, commodity ripe with miscommunication, disappointment and worse issues.