For a Pitch Book That Really Works, Try Thinking “Outside-In”

by | Dec 1, 2016 | Alternative Investments

This article recently appeared in Opalesque New Managers (Issue 56, November 2016) – an online news publication focusing on the global emerging hedge fund manager.

In working with emerging hedge fund managers, our firm gets to look at a lot of pitch books every year—the good, the bad and the ugly.  And more often than not, the pitch books we see suffer from a shortcoming that’s right out of Marketing 101.

Most pitch books are created “inside-out”

In other words, they’re written primarily from the perspective of what’s on the mind of the fund manager rather than what’s on the mind of prospective investors.  Too many pitch books lead off by dwelling on the manager’s pedigree, their philosophy, the minute details of their investment process, and so on.

What these pitch books don’t do right away is the one thing that can actually grab the attention of their target investors and pique their interest…

They don’t tap into the investor mindset

To see why most pitch books fail to engage investors, it’s a good idea to think about the perspective of a typical high-net-worth (or small institutional) investor who is about to read your pitch book or listen to your presentation:

  • For investors in this market, it’s primarily the investment strategy that differentiates one fund from another. Investors are eager to find out if your investment strategy has distinct, innovative advantages that would enable your fund to outperform and deliver attractive benefits.
  • They also want to know whether your fund has a risk/reward profile that would fill a need in their overall portfolio.
Working from the “outside-in”:  Immediately give investors a reason to care

We suggest that you respond to your target investors’ mindset very early in your pitch book.  For one thing, quickly establish that you have a robust, replicable investment strategy, and let investors know:

  • If it capitalizes on any idiosyncratic or proprietary factors, or on any special expertise or catalysts.
  • If it exploits a market niche, information asymmetry or other anomalies. These types of strategies are particularly appealing to investors because they indicate that the fund is capitalizing on some structural aspect of the investment landscape for its alpha advantage rather than relying solely on the manager’s analytical and decision-making capabilities.

Also, your pitch book should quickly convey the investment benefits that your strategy is designed to deliver.  Investors want to know if they can achieve, for example:  diversification away from the performance of the stock and bond markets; protection against (or return from) volatility; absolute return; or some other valuable benefits.

Showing investors upfront what’s special about your fund’s discipline and “what’s in it for them” (or their institution) can engage them, give them a strong reason to care, and make it more likely that they’ll take the time to review and consider your whole story.

Adding “credibility factors”:  This part is all about “you”

Once your pitch book has sparked interest by demonstrating that you have a distinctive methodology for creating attractive investment benefits, your book should then add credibility by relating your experience and expertise, your firm’s infrastructure, and the details of your investment process.  And when you have a performance track record you can tout, you can of course add that as well.  These “credibility factors” can instill confidence that you really do have the skill and resources to accomplish what you say you’re going to.

If outside-in thinking is such a good idea, why is it so ignored?

We believe there are several reasons why most pitch books are not based on outside-in thinking:

  1. While fund managers may be astute entrepreneurs and skilled at managing assets, they aren’t necessarily sophisticated marketers. They typically follow their instincts and tend to talk about what’s important to them.
  2. Emerging managers are often self-conscious about their lack of long-term alternatives experience and track record. They, therefore, may feel that they have to strongly establish their pedigree before anyone will listen to them about their fund. But think about it.  By the time an investor has agreed to meet with you or read your pitch book, you have probably told him or her enough about yourself and your firm to, at least, get them to that point.  At that juncture, they will most likely be willing to spend a few minutes learning about your fund’s strategy and advantages to see if it is of interest to them before delving further into your “credibility factors.”
  3. Many HNW-oriented managers have probably adopted an institutional approach by default. They have been led to believe that “the three most important things are pedigree, process and performance.” This approach makes sense if a fund’s strategy is undifferentiated and vying for a conventional mandate in the portfolio of a large institution.  In that case, the fund may be compelled to compete primarily on the grounds of managerial experience, process, infrastructure and track record.

But in the HNW space, investors don’t think in terms of standard “buckets” or “mandates.”  What piques their interest are the idiosyncrasies of a strategy that seem to offer a compelling path to profits.

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First and foremost…

Make sure that what’s on the investor’s mind plays a substantial and immediate role in your investment story.  Once you’ve established this investor-centric connection, you’ll be in better field position to channel their mindset to you and your fund — which is the essence of an effective pitch book.