We have historically distributed our investment products through various private wealth management platforms. We believe now is a good time for us to begin to sell directly to institutional investors, but we're not sure how we should start, especially since building these relationships can take a long time. How should we begin this process?
How do you enter the institutional investment market?
First, many institutional investors want to be able to have a separately managed account, which you most likely didn't offer previously. Thus, you should decide the minimum account size that you will accept and, of course, you must be willing to provide all the required accounting and record keeping, as well as complete transparency so the asset owner can see the returns and risks associated with every holding.
Let's assume your opportunity set is composed of corporate and public defined benefit plans (perhaps 401(k) and 457 plans as well), endowment funds, foundations and large family offices. You need to perform some intense, forensic research to determine which channel has the highest probability of having early interest in your product.
Besides reading all the trade press on a regular basis, I would suggest at a minimum you should subscribe to Fin Searches, P&I Research Center and Preqin to help determine which asset owner types have historically invested with managers offering the same or somewhat similar products (asset class, strategy, style) you are offering.
Also try to determine which asset consultants would be best for you to approach early on, remembering that most consultants provide research and analysis of asset managers on behalf of their clients, the asset owners, and then recommend asset managers for approval. There are consultants who are now providing chief investment officer functions on an outsourced basis and here the consultant actually makes the selection, again on behalf of the asset owner and may not require prior approval before the selection is made. Therefore, consultants are an important channel that you should focus on at the outset as they provide a certain scalability and reach.
By qualifying your “leads” you may be able to narrow this huge universe down to a subset that has some common characteristics and will allow you to really focus on this group. Marketing and selling to the institutional investor marketplace does not lend itself to a spray-and-pray strategy. One size does not fit all and don't believe it when someone says the more you throw against the wall the more that will stick. It just doesn't work that way.
At the risk of proverbial overkill, you have to use the rifle approach and not the shotgun. You should be able to pre-qualify leads very quickly with one, perhaps two phone calls and one or two e-mails. The asset owner does not have the time to “munch the greens” with you. They are very busy and will let you know early on if they have any interest in your products. While this may not help in building long-term relationships it does provide a high level of efficiency as you will learn quickly if you have a product that meets their needs and objectives.