How Portfolio Managers Can Learn to Speak “Investor”

You get a meeting with a target investor. You are jazzed. One problem. What you plan on talking about isn’t going to work. Let us explain.... 

A research report from CAIA discovered a significant disconnect between Portfolio Managers and investors. It started with a pretty in-depth survey where CAIA asked Portfolio Managers and Institutional Investors around the world, “What is the most important thing, quantitative due diligence or qualitative due diligence?” 

  • PMs said quantitative is far and away the most important thing that investors care about. 
  • Investors said qualitative is as important, if not more important, than quantitative.

You’re basically coming to the table speaking a different language than your target market. But don’t worry. We got you. We’re like Rosetta Stone but for “Investor.”

If you’re transitioning from the institutional space, first it’s important to understand the difference between the investors you used to target and Early Adopter investors - who you should now target.Rogers Adoption Curve

Five types of customer segments on the Rogers Adoption Curve

Let’s look at the Roger's Adoption Curve, a model often used in the tech sector but very applicable to the investment industry (because it’s really a curve about humans and well, investors are actually people). On the curve you’ll see five types of customer segments and the role they play in adopting products. Innovators > Early Adopters > [chasm] > Early Majority > Late Majority > Laggards. Institutions typically sit at the later part of that curve. If you’re transitioning from the institutional space, you're used to dealing with Investors in the Late Majority. You probably went to box checking meetings, where you stood in front of a committee and knew exactly what they wanted to hear. The committee listened… check… check… checked the boxes. No institutional committee ever asked you about your life journey.

But now you’ve started your own firm; you're a boutique. Institutions are no longer your target market because they're not typically going to invest in a new firm on day one. The customer segment you need to go after now is the Early Adopters - RIAs and family offices. And they're not box checkers. What’s important to them? Your story… your values… YOU.

Early Adopter investors want to know why you started your firm. Why did you leave whatever big firm you were at, break away, and start this company? Who are you as a person? What do you believe in? What are you doing differently than the firm you came from? How are you incentivizing your team? What’s your culture like? 

“Culture eats Sharpe ratio for breakfast”
- John Bowman

Not gonna lie, we’re getting a poster for the office with this quote.

When we're doing due diligence on a potential investment boutique partner, these backstory type questions are some of the first ones we ask. Often, managers are taken aback by the question. They get flustered and want to speak to their unique ability - their investment skill, process, portfolio or market insights. Culture is out of their comfort zone. But the reason we ask is because it matters to the investor. It matters especially to the Early Adopter investor who has a different DNA than a later stage investor.

Many Portfolio Managers believe that they should be speaking to the rational mind, but it’s the heart that invests first; then our rational minds justify our decisions. Get comfortable sharing your story.

Other qualitative aspects that Early Adopter investors care about include:

  • Is your firm founder/PM led?
  • Is it 100% employee owned? When there's another entity that owns the majority of the boutique, there’s a very different dynamic. 
  • Is there an alignment of interests? (Is your money in the strategy?)
  • Capacity constraint: Are you intending to be an asset manager or an asset gatherer? Early adopter investors are interested in the former.
  • Is your strategy an asset class where you can add alpha?

These are important things to focus on with investors.

Last tip here: ditch the pitch. Sure an investor will sit through your pitch deck, letting you go slide by slide, but they’re mostly waiting to ask the questions they really want to get to. That's an unfortunate waste of time; we can do better. YOU can do better. Ditch the pitch book and have a conversation as a person so the investor can get to the answers they really want. 

Remember: The investor is trying to ascertain whether you are a trustworthy and ethical person, not just whether you can pick stocks. If they allocate capital to you, will you take good care? Will you be a good steward? Will you be a good partner?

CAIA interview with Stacy Havener and Aaron Filbeck

Our founder was interviewed by CAIA on this topic. Tune in.


People invest with people.
It’s easy to forget in a numbers business, but it’s true.

We speak “Investor” and help investment boutiques learn the language.
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