It's no secret that the financial services industry has changed, and probably forever. Communicators at banks, asset managers, and alternative firms have seen their roles and prominence within their organizations evolve.
Most senior communications professionals, if not all, are gaining a seat at the boardroom table to shape critical business decisions.
The search for yield, however, is fueling the next wave of change in the industry, and communicators will need to adapt their skill sets yet again to take on the convergence of traditional and alternative asset classes.
A report by McKinsey – “The Mainstreaming of Alternative Investments” – suggests that investor behavior is bifurcating. With the mysterious world of hedge funds and private equity opening up to the individual investor, and institutional investors on the hunt for the double-digit returns they have historically enjoyed, the line between traditional and alternative asset management is quickly disappearing.
The report suggests that by the end of this year, institutional investors will increase their allocations to almost all forms of alternatives, particularly hedge funds. Combined with this, alternatives are rapidly moving in to the mainstream retail market; by 2015, retail alternatives are expected to account for one-quarter of retail revenues. KKR, one of the largest private equity firms, is a good example of this trend, having recently announced its intention to launch a traditional asset management business.
The convergence of these asset classes is evident throughout the financial services industry. According to McKinsey, two thirds of traditional asset managers have made alternatives a top-three growth priority. It is not clear which model, the organic growth of business units or the acquisition strategy preferred by most, will prove to be the most successful.
What is clear, however, is that communicators and marketers will face their own set of challenges both internally and externally. For example:
Different models = different cultures: The vast cultural differences between the massive traditional asset managers and the smaller, more nimble alternatives firms will present unique challenges to communicators as they seek to bridge different cultures or build unified cultures, particularly with an acquisition strategy.
Master marketers vs. secret club: Traditional asset managers such as OppenheimerFunds, Franklin Templeton, BlackRock, and PIMCO are master marketers. The brands are widely recognized by retail and institutional investors alike and invest significant spend on aggressive marketing and PR campaigns aimed at reaching advisors and the end investor. On the other side of the coin, alternatives firms, thwarted by regulations prohibiting marketing, typically invest little in the marketing and PR function and are widely unknown outside of their sector. Bridging the gap, particularly with the pending changes driven by the JOBS act, will take communicators with knowledge of both asset classes.
Retail customer vs. institutional customer: Alternatives firms have historically focused on a very niche audience of select institutional investors. As access to this asset class opens up, these firms will need to recognize the need to develop more customer-centric capabilities that focus much more on the individual high net worth investor and the financial advisor community that drives much of the flow into the traditional sector.
Brand building vs. brand protection: Historically very reserved, hedge funds and private equity firms have become the latest casualty in the financial services industry reputation “bashing” that has impacted the sector since the financial crisis. Driven largely by hedge funds' perceived involvement in the financial crisis, the “Romney election effect” and the reports of outsized compensation, public perception of the asset class is often negative. As a result, many alternatives firms have taken a “less is more” approach to PR. Traditional asset managers, on the other hand, have been largely risk averse yet continued to build their brand throughout the crisis.
So, what does this all mean to communicators and how do we ensure that our profession is at the forefront of this convergence?
1. Tap your agency network: In-house communicators at alternatives firms are few and far between with many firms choosing to outsource the function to agencies. In fact, many communicators with deep knowledge of both asset classes reside in financial services-focused agencies. Don't be afraid to tap in to that knowledge.
2. Hire the expertise: As traditional asset managers embrace the alternatives world, build out your team to include alternatives specialists. While they are few and far between, they understand the nuances facing your internal business line clients and can help bridge the knowledge gap, particularly post acquisition.
3. Be one step ahead of the regulations: Traditional and alternative asset managers are faced with their own swath of regulation and it is constantly changing. Engage with legal and compliance as well as outside experts to understand the barriers facing you in your communications strategy.
Financial communicators have had their fair share of challenges in the last five years and no area of our profession has rolled with the punches more. As the sector evolves, I have no doubt that the talent will too.
Caroline Gibson-Harris is a SVP at Prosek Partners and specializes in financial services communications, particularly alternative and traditional asset management.