From Institutional to Retail: How Alternative Investment Managers Can Use Communications to Cultivate RIAs
With investment managers vying for allocations from individual investors, the pressure is on to become a preferred brand for alternative investment solutions. An enhanced approach to communications can provide an edge with Registered Investment Advisors (“RIAs”), a key conduit to end investors.
For decades, alternative investments have been a critical part of institutional investors’ portfolios. Alongside other asset classes like public equities and fixed income, alternatives have helped pension funds, endowments, and similar institutions diversify their holdings and generate superior returns for their ultimate beneficiaries.
Yet, as Institutional Investor observed, with these institutions reaching the upper bound of their alternative investment allocations, investment managers have been seeking out individual investors with ever-lower levels of investable income to grow AUM (commonly via RIAs). Analysts estimate that anywhere from 2% to 10% of individual investors’ dollars are allocated to alternative investments—far less than the typical institution, which might allocate upwards of 25%.
Using Communications to Cultivate RIAs
Given the opportunity at hand, many firms are stepping into the fray. Large incumbents have rolled out new business lines and newcomers have emerged.
Often, these players are attempting to translate their success in the institutional world to the retail market: They are transiting from working with large investors, with whom there are often existing relationships and an appreciation for the role of alternatives, to a much more vast retail market, where each investor represents a far slimmer portion of the overall pie and familiarity with the asset class is lacking.
Given the nature of this investor base—more fragmented and under-allocated—communications must be central to new commitments. Here are a few ways to approach this audience:
- Hammer home the core value proposition of the asset class. In your message architecture, prioritize speaking to the role of the asset class before anything else. Given the limited access historically afforded to most individual investors, it is important to start there. Fortunately, private markets have a strong story to tell. In the case of private equity, returns have generally outpaced those seen in public markets by a significant margin, while exhibiting lower volatility. Adding private equity exposure is also another way to diversify your holdings, especially given the decline in the number of companies going public (for example, research shows that, within the technology sector, the average age of a new public company had gone from 4.5 years in 1999 to more than 12 in 2020). These types of foundational points are salient and worth emphasizing up front in various communications channels.
- Be a partner, not a product provider. Position your firm as a partner who can help investors not only understand the value of alternatives and provide solutions, but also sort out the underlying factors that impact all asset classes and are dominating headlines. There is no shortage of information sources these days, many of which offer competing and often self-serving views. Create and share high quality content for investors that provides the information they need to understand the investment environment. Trust is the lifeblood of the financial services industry, and Edelman’s research shows that information quality is the most powerful way to build that trust.
- Go to their turf and forge strong relationships with industry press. Whereas top tier news outlets might be familiar with your firm and private equity on an institutional scale, there is work to be done among the trades read by the RIA community. Take the time to invest in those relationships, helping journalists understand how private markets fit within the individual investors’ portfolio and why your firm has an advantage over others. They will be looking to understand any edge in the areas of access, manager/fund selection, liquidity, and technology. It takes time to cultivate these relationships and they should be viewed on a long-term basis.
- Use paid media to cover ground you cannot. Unlike the institutional LP base that many private market firms are accustomed to reaching, the retail investment base is much broader and cannot be as efficiently engaged on a one-to-one basis. And while engaging the press can help garner broad visibility of your firm, supporting your own content with paid media is an effective way to precisely target your audience on social media platforms like LinkedIn.