Margolis Advisory Group, Inc. . Investment Management . Consulting . Sales

Converging on the Client

There has been much talk lately of “convergence” in asset management. That is, are alternative and traditional asset management styles and products converging so that there will no longer be much distinction between the two? Some years ago DE Shaw launched 130/30 strategies which are hybrids between the two forms of management. Recently Citadel announced they were launching a traditional fixed income business. There are rumors of other alternative managers launching traditional businesses. Certainly, over the past several years, many traditional managers launched alternative products, although in most cases they were sidelights to their main businesses.

In my view, distinctions between alternative and traditional forms of investment management have always been somewhat artificial. Certain strategies and products have blurred the lines for years. At the end of the day successful investment management strategies need to add economic value to clients and meet the objectives clients set out for those strategies within the context of their overall portfolios. Labeling the strategies alternative or traditional adds little to the understanding of whether they add such value and are proper fits.

Clearly, there are cultural and language differences between firms that have their roots in the traditional vs alternatives sides of the business. But those are inwardly focused dimensions. In order to succeed and prosper in the current environment, asset managers must, more than ever, keenly focus on client needs and respond to them with solutions-based strategies. In their words and actions they must put the client first, which might require massive cultural changes for some managers. In the end, though, we are all in business only to serve our clients.

Add comment January 11th, 2010

Meeting Client Objectives; No More Labels?

Selling investment management services to institutions has always been a consultative process. Sophisticated investors want to understand and appreciate the capabilities of an asset management firm. This knowledge is generally transferred over a period of time in a series of encounters between personnel from the asset manager and institutional investors. However, for quite some time, the marketplace has forced these capabilities into buckets with specific names. Initially they were styles within asset classes, such as large cap growth and high yield fixed income. Then, we had the division between traditional and alternative investments. This has been followed by more solutions-based strategies such as Liability Driven Investing.

When businesses flourish, there is a tendency to keep things the same as much as possible. Therefore, changes in business approach are slow, and the investment management industry has experienced this until recently. For example, the death of style boxes has been discussed for many years, but many manager searches still are defined by style box. However, industry and market events of the past year are likely to disrupt this relative stability. More and more managers are telling me that their opportunities are now about specific customized capabilities rather than defined products. Artificial distinctions between alternative and traditional strategies are blurring. Easy labeling is fading in favor of specific descriptions of capabilities designed to meet specific client needs. In order to succeed in this new environment, managers must meet the challenge of convincing institutions that they can fit their capabilities to client objectives, while continuing with their focused consultative approach.

Add comment July 20th, 2009