The Asset Manager's Guide to Differentiation
Differentiation is Key to Your Success in Raising Assets
So Make Your Competitive Edge Very Clearly Understood
Many well-respected allocators, particularly those who have spoken at industry events, have said managers often fail to articulate their unique edge.
There’s a fine line between fitting in - showing that your firm possesses all the manager characteristics an allocator needs per their due diligence requirements - and having no distinct point of differentiation from your peers. You need to 'check the boxes' as far as investor due diligence requirements, but you also need to stand out. If you’re not consistently highlighting your competitive edge, you’re making a blurry impression, one where your strengths and expertise aren’t clear.
Allocators evaluate managers who have a clear edge - also known as a ‘value proposition’ or ‘USP’ (unique selling point) - and managers who don’t. Investors will have a natural bias to allocate with managers who provide the strongest investment rationale. Those managers who can point to their competitive edge, and prove it, are ahead of the pack.
To figure out your competitive edge, you’ll need to take a critical look at your entire operation.
10 questions to help you zero-in on a compelling point of differentiation:
What makes your firm memorable?
How does your pedigree and/or your team stand out?
Do you have a solid risk management process that works?
Is infrastructure one of your firm’s strengths?
Do you have a compelling fee-structure?
Do you use a unique technology, system or process?
Does your team share a specific characteristic or credential?
Does your firm specialize in serving a specific niche of investors, i.e. do your clients share a common characteristic?
Does your strategy have a unique focus?
Does your firm or your strategy focus on proprietary research?
The Rules of Differentiation:
Your point of differentiation must be true; you can’t just make it up. Your credibility and reputation is at stake, so make sure you can deliver on your stated edge. For example, many firms pay lip service to having a risk management process when, in truth, they don’t always enforce it. If it isn’t true, you won’t actually be different.
It must be important to your prospective investors. Obviously, your competitive edge must have value. If you’ve been through the due diligence process enough times, you know what’s important to accredited investors.
It must be supportable. Make sure you can prove it, because investors will want to see the data behind your differentiation claim.
2 Paths to Discovery:
- Create your competitive edge. You can make management decisions that clearly differentiate your firm from competitors. For example, if you don’t have a real risk management process, consider developing one. This approach might mean making a significant change to your business, but a worthwhile endeavor if it’s a change that your prospective (and existing) clients will greatly appreciate.
- Identify your existing edge. Maybe you have a competitive edge, but you haven’t yet articulated it in a way that resonates in the marketplace. It’s certainly easier to rework or build up a meaningful point of differentiation that you already have versus creating one.
Either approach requires research - on yourself and on your competitors. Allocators expect you to demonstrate a deep understanding of how your firm compares to others in the investment marketplace. The more information (proof) you can provide as to why your firm is the best fit to meet your client’s needs, the more likely you are to make a distinct impression and set your firm apart from your competition.