Retail global demand for alternative mutual funds continues its astonishing rise, with a predicted $939 billion in AUM by 2017, according to a Citi Prime study earlier this year. Many asset managers seeking to capture this opportunity will choose to focus on RIAs, who are  strong drivers of the retail market, with over 17% of AUM in liquid alts.

Performance: More than Numbers

In a recent Ignites Q&A, Lydia Sheckels, executive VP and CIO of Wescott Financial Advisory Group, answered the question “What Fund Marketing Materials Do RIAs Value?” Performance attribution is chief among her concerns.

But Sheckels isn’t just looking for the best numbers. The marketing pieces she valued most provided deep context about management process, portfolio strategy, and the manager’s insight into the market — including thought leadership on how current events affect the investing landscape.

What Sheckels finds most compelling — and sometimes hardest to find — is data about “specific holdings or sector positioning.” Too often, she says, such data is removed by compliance officers, rendering the fund information “virtually useless.”

When asked about alternative mutual fund marketing materials in particular, Sheckels remarked that she had seen “several fact sheets that reflect top holdings and positioning” but “for the majority, the rare and brief commentary tends to be too vague to be helpful.”

Compliant, but Opaque

Asked how fund managers might bridge the gap between RIAs’ requirements and compliance restrictions, Sheckels said in an email, “Larger firms have concerns about others knowing how significant their positions are, but this is also hard to conceal with required SEC filings. Some firms require that we sign Non-Disclosure Agreements to obtain holdings, which we consider a very valid request. We take our monitoring role very seriously.”

Sheckels added: “Brokerage-based firms may have genuine concerns about brokers using management’s comments and/or holdings to trade for their clients’ accounts. I believe that they should be able to implement internal system checks to halt this — blocking any trades of securities held in a managed account, for example. I may be oversimplifying here, but my main point is [that] we value having past performance explained. We’re not looking to have it predicted, or for them to give us an unfair advantage by sharing what they are doing in real-time.”

Prove It

Carpenter Group advises asset managers to focus on branding, pointing out that, especially for new funds, a powerful marketing strategy can be built on the prestige of high-profile directors.

Sheckels also emphasized the value of a strong manager, pointing to a potential marketing opportunity for a fund to capitalize on a new manager’s “well-documented investment strategy and long-term track record.”

But for alternatives, Sheckels sets the bar pretty high, saying that “There is never an articulate or persuasive enough strategy that would lead us to invest without a track record of five years, unless the strategy can be tied to a predecessor one for which results and transaction history are available — in that case we like to see three years.”

Like most advisors, Sheckels wants to be able to access information on her own timetable. She values in-depth webinars and conference calls, but wants on-demand access to transcripts via email or an easily navigable website.

As we’ve said, RIAs are a diverse group, and Sheckels' point of view may not be universal. Marketing requirements can vary widely within this segment, depending on the individual RIA’s level of sophistication, familiarity with alternative products, investor needs, and due diligence process. Substantive research to identify appropriate prospects is a crucial to development of a successful marketing strategy.

But in general, because RIAs are held to a fiduciary standard, they tend to have rigorous due diligence processes comparable with those of institutional-level gatekeepers. RIAs will respond best to a sophisticated, information-rich approach that provides ample data for independent, self-directed analysis.

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