NAA Article by Claudio Phillips
“There are no secrets to success. It is the result of preparation, hard work, perseverance, and learning from failure.”
The Hon. Colin Powell, U.S Secretary of State and U.S. Army General, Ret.
So if performance is the most important criteria in raising assets, then perseverance is 1A. Perseverance in building out a successful business is needed as there will always be external factors that cannot be controlled -but to a great degree, mitigated- such as:
• Financial Market Disruptions. This is where the rubber hits the road in proving out an investment strategy and staying calm in the face of chaos. We launched our company on the back of the Great Financial Crisis of 2008, and anyone now working as an asset manager has, like us, faced the challenges of the last 18 months. Because we stayed the course, we did well by our investors not only on the return front, but we also gave them comfort that we did what we said we would do. During the dislocation in 2020, we persevered and bought assets while many investors were either selling or were paralyzed by the unknown. As the panic subsided and investors began to emerge, driving prices much higher in late 2020/early 2021, we monetized our investments. We kept to our strategy, and subsequently our LPs were rewarded with gains and distributions. The lesson learned here is to keep the lines of communication open, not only with current investors, but also potential investors (especially during non-fundraising cycles) to show how maintaining the stated strategy is critical.
• Initial lack of “fit” in an Allocator’s strategy. Many Limited Partners (especially public pension plans) have very specific investment parameters as well as specific allocation strategies that may not have much flexibility. While at first glance it may appear that a specific investment strategy may not be an appropriate fit, you really must continue the dialogue with the potential Limited Partners. This is critical for two reasons: 1. you must be prepared if there is a change in allocation strategy; and 2. there may be other areas within the organization that could be a better fit. For example, because of our locked-up structure (despite the fact that we are special situations and credit oriented), we were introduced to the private equity team of a large institution. After several meetings, it became clear we were a better fit for the fixed-income pocket which had an illiquid credit component. Since then, our investor has benefited from outperforming returns, adding much needed yield in the near-zero interest rate environment we have been bound by during the last ten years. So keep on learning about asset allocators!
• Personnel Changes. This always seems like a frustrating situation: you spend years building personal relationships with a key person at a potential Limited Partner and all of the sudden they leave for another institution. This may initially seem like a negative development, but if handled correctly, it can actually benefit your asset raising capability. Over the years, we have maintained relationships with many individual asset allocators throughout their personal career moves during both fund raising and non-fund raising cycles. Despite departures, there is still institutional knowledge and so you are not beginning from square one. And at the new institution, there is personal knowledge of the strategy, fit, etc. So don’t despair, but do stay in front of both parties.
All entrepreneurs have moments of doubt. Nothing is easy and the goal posts keep getting moved (or so it seems). The key to success in this business begins and ends with performance, but in between, you must persevere, do what you said you were going to do, and continue to more clearly define your story and strategy. There is no magic formula to building a successful asset management firm, but good old fashioned hard work and ethics are the place to start.