Alan Chu's blog

January 19, 2016 · 8:30 am

Undeniable Proof That Your Fund Needs More Than Performance

Performance

2015 was a really tough year for fund managers. According to Hedge Fund Research, the average Hedge Fund ended up losing, and also underperformed against the S&P 500. In fact, 674 liquidated in the first nine months of 2015. If the trend has continued into Q4, we would have seen more 2015 liquidations than in 2014, which saw 864 hedge funds close up shop. We’ll find out when numbers are released in a few weeks…

Anyone who’d hoped that 2016 would start off bright had their hopes deflated quickly. Chinese markets were down 7% before most of us were moving on this side of the world, triggering its short-lived circuit-breaker experiment, and causing European and American markets to get rocked as well.

With all that said, 2013 and 2014 saw more new fund launches than closures, and while 2015 saw a slowdown of launches, wealthy investors can still choose from 10,000++ global hedge funds which are tossing around approximately $3 trillion.

AND THEY STILL KEEP ON LAUNCHING

Hedge funds continue to launch because everyone has read about the few managers who have earned $1B/year running their funds. The secretive and exclusive nature of starting a hedge fund has a draw for someone who has already established a successful track record.

What one must realize is that starting a fund is a very challenging endeavor that takes a multi-year commitment to refine your strategy, build your team, find your niche marketing spot, and foster trust in investors. It’s not something you can just do with some capital, a computer, and a telephone.

You’ve got relationships with seed capital providers, HNWs, foundations and endowments, and the like across your glittering career, but how are you going to convince them that you’re doing more than just separating their wallet from them? And how are you going to convince them that you are in it for the long haul?

Developing an overall vision for your fund, building a brand around it, and coming up with the marketing collateral required are ultimately used to (1) attract new investors, and (2) hold on to your AUM in years with below-benchmark performance.

Historically high quality returns do indeed drive points (1) and (2) above, but there’s more than that to why investors come to you, and stick with you. The article below describes how Bridgewater’s “Show. Don’t Tell” approach helped them to hold on to their $150B+ in AUM in 2013 despite mediocre performance, and how most managers confuse “trust” with performance.

Much of building your vision, brand, and marketing collateral would seem like simple Business 101-type details, but they are often overlooked or poorly executed. Investors who have been looking around to place capital can tell quickly if something was thrown together at the last minute, or if there was a lack of effort in setting up the fund.

Performance is a given. It has to be there for you to even think about starting your own fund, but there’s that whole other world of commitment to the process. You’ll be building trust in investors and over time (and with lots of effort), your competitive advantage. And you have to be all-in, ready to show that you’re prepared to fight through all the ups and downs along the highway to becoming a successful manager.

You can’t “sort of” ride a rollercoaster. Either you are hurtling through space at Mach-2 with your hair on fire or you’re standing on the ground below. You can’t do both. To dangle one foot outside the speeding car is mighty dangerous.

By Alan Chu

Santa Claus & Commitment

Commitment

A classic example of Marketing Commitment can be seen in Coca-Cola. The Santa Claus that we all know and love didn’t always look the way he does today. Prior to 1931, his looks were only limited by cartoonists’ imaginations. Then came 1931, when Coca-Cola decided to develop advertising images using Santa Claus. He debuted in Coca-Cola ads in National Geographic, The New Yorker, andThe Saturday Evening Post.

To a lot of people, the word “marketing” means to create a new deck, produce a video that will intrigue people, or even to develop an app which helps make their product or service more mobile-friendly. Once that’s done, they sit back in their chair with their fingers locked behind their head and think:

Mission Accomplished. The marketing work is done.

After creating the image of Santa and splashing him across print media, Coca-cola didn’t just say “Mission accomplished, now on to the next campaign”. Over the past 80++ years, they have has kept up their marketing commitment to dripping the story of Santa Claus to the public (we are all suckers, aren’t we?). From 1931 to 1964, Coca-Cola advertising showed Santa delivering toys, pausing to enjoy a Coke, visiting with the children who stayed up to greet him, then raiding more refrigerators for Coke. Since then, they’ve used him on billboards, calendars, store displays, and magazine advertisements.

The result? People associate the red of Santa Claus to the red of Coca-Cola. We see Coca-Cola trucks with Santa splashed across them. If people are asked to think of a cold beverage which has the closest association to Santa, they won’t say Pepsi, Sprite, or even milk. They’ll say Coca-Cola.

Similarly, if you want your brand to be the first thing that comes to mind when people think of a certain color, a certain service, or a solution to a problem they are facing, you need to stay committed to your marketing effort. While it takes time – not months, butyears – it pays off. Real marketing requires commitment. Marketing Commitment means that your marketing process does not end. It keeps going from all directions using what you had initially invested in. The layman’s term to this is “hustling”.

Lots of people in our industry head off to 3rd-party marketers. They get a deck created, produce a video, or develop a mobile app. Once that’s done, they carry on doing everything they did before, without leveraging what they had just invested in. And a lot of the time, this happens because there’s no commitment to marketing.

I must remind you that commitment is what you do when no one’s watching. But remember this: Santa Claus watches you when you’re sleeping, and he knows when you’re awake. He sits in a dark room, with his shirt off, the smell of cold pizza and cheap beer in the air, one hand clutching a barbeque chicken leg, and the other gently stroking Rudolph’s thigh as he watches you in your bed.

Stay committed to your marketing strategy, and know that it is a long-term process in which you leverage your own marketing tools to develop a brand for yourself. It all starts with that first step.

5 Things That Everyone Should Be Doing To Measure Marketing ROI

Why is calculating your marketing Return on Investment (ROI) important?

First and foremost, it’s because marketing should be viewed as an investment, and not as an expense.

And like any smart investment, it need to be measured and monitored to make sure that it’s working for you, and not the other way around. Here’s how you can do so:

1. Ask every one of your prospective clients how they found you.

This sounds extremely obvious, but ask yourself if you have been disciplined in doing so. Few truly take the time to (1) ask (2) record this information (3) generate a simple report to note primary prospect entry points. By knowing the primary entry points, you can funnel more resources there and get a better conversion rate over time.

Whenever someone interacts with your firm – whether it is in-person, over the phone, or online – ask them how they found you. If someone views your profile on LinkedIn, ask them what brought them to your profile. It could have been an article you wrote that was re-published on a forum. Find that source, and it’ll be something you want to explore and leverage.

2. Email/ Video Tracking

You might say, “this seems like such a ‘Big Brother’ thing to do”. The truth is: you can’t fight it. Tracking analytics is already becoming mainstream. Simply sending out a fancy newsletter with all the best information leaves you with no “next-step”. Sure, some people might contact you directly, but what about those who just needed a quick follow-up to be converted?

The benefits of these analytics are threefold:

It will tell you whether your email/ video marketing efforts are being noticed to the effect that you’d want them to be. If they are, good. If they aren’t, go back to the drawing board and find out what’s not working.
It reduces the need for cold-calling. By knowing who’s interested (opened and clicked on hyperlinks in the email), you eliminate the need to go through the full list. You will be talking with people who are worth talking to.
You can gauge the periods of best response for your specific audience. Weekends? Tuesday mornings before 8am?

There is a plethora of email/ video tracking online software that help you generate analytics. Some of them are good, some of them are bad. Some are overpriced, and others are great but few are using them. Ask me what you should be using.

Email/ Video Tracking has to be embraced now. You just can’t fight it. After years of resisting, Winston Smith himself discovered that he loved Big Brother all along 🙂

3. Use unique URLs

Let’s just say that you’ve put out an advertisement on TV, in the newspaper, and on the radio. A few years ago, people would be picking up phones and calling in. In this digital age, most people’s first point of research about your product comes from visiting your website.

So what? This screams MEASURABILITY to the opportunist. For each advertisement you put out (change the mediums to whatever you want), create a unique URL for them, all of which point to your homepage. In your newspaper advertisement, the copy says “Visit us at www.my.fund123.com” but in a webinar that you provided, you say “Visit us at www.your.fund123.com”. Both point to your main homepage, but you’ll know whether the newspaper or the webinar was more effective.

Talk to your IT guy about it, he/she will have it set up in 10 minutes.

4. Leverage CRM platforms

CRM (Customer Relationship Management) platforms help businesses more efficiently track their relationships with prospective and existing customers. Tracking your prospective customer relationships is elemental to understanding marketing ROI – filter where both leads and duds are coming from, analyze your opportunity funnel, and record activity over a sustained period of time.

Just like email/ video tracking, there is an abundance of CRM platforms out there. Everyone has their favorites and so do we.

5. Doing The MATH

The above are just 4 of many ways you can measure your marketing ROI among many more (i.e. A/B testing, registered mail, etc.). But you’re not going to be measuring anything if you aren’t calculating anything.

Let’s use Google Analytics and your website as an example. Simply go to Audience → Overview → Sessions.

Marketing

a. That’s your site traffic per month.
b. Find out how much you are spending on your website each month, and don’t forget the initial investment you took out to build it.
c. Find out your number of sales.
d. Find out your total $ of sales.

From that you can easily calculate your conversion rate, $ value per site visitor, average sale, and your current website ROI.

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Not too difficult, right? If you’re still not convinced that you should be measuring your marketing ROI, consider this:

Measuring your ROI will help you justify marketing investments. In tough times, the first thing in the budget to go is usually marketing – a dangerous move since marketing is an investment to produce revenue.

By consistently measuring your ROI, you can help holders of the purse-strings understand that marketing is not just a fluffy expense that can be cut when times get tough, and that it could well be what gets your company out of the hole you’re in.