Fund Management and the Art Industry

poor-baby

Artists paint what they like, they rarely ask if there is a market for their work
More often than not, fund managers don’t ask if there is a need for the product they are offering. They are often very talented specialists that may or may not be in demand. In asset management, just like an art critic, it is up to the allocator to decide if there is talent.

Artists think they are unique (often, they are not)
No matter how esoteric a strategy is, there is always something to compare it to. Let’s be honest, human beings are judgemental animals that compare things in order to pass judgement. Fund managers often spend decades mastering their craft. However, we are influenced by others. This is obvious in music and art, and is equally true in Fund Management.

What I find entertaining in asset management is that the fund manager will often say they have no competitors, but when you ask the allocator they are able to rattle off 10 other managers that are similar. We always hate being put in a box, but boxes are where you put things.

With a mind numbing amount of funds now, allocators have a large amount of choices. If you love one artist, then you will compare them to another artist. There are a myriad of things to consider: Affinity, price, potential, etc.

They change style
Many artists have found that some works appeal more to the market than other styles they have tried (I don’t mean style drift). Many managers come to market with a product and then find that the market would prefer a different legal structure, access to a carve-out of the strategy in order to better access a certain alpha opportunity, etc. Success is often trial, error, then another trial. Artists that prefer not to starve will accommodate requests and special commissions.

They think their work will be appreciated
After working for many years to perfect their craft, it is naturally assumed that the industry will respect the performance or the difficult market conditions that a manager has had to endure. Sadly, this simply isn’t true. We have met a lot of managers who think that their performance alone will attract attention. It doesn’t. Although I can’t vouch for every allocator and nuance of an allocation, most serious allocators look at performance as a product of good process. It is their job to discern under what conditions a manager will perform well in, and vice versa. When things go wrong (and that time almost always will come), is the manager going to be proactive and explain what is going on, what they have learned, and if there is an opportunity? Managers often think that performance is the key driver for allocations, but allocators are looking for respectable and talented managers they can form a partnership with. There is a lot more to this judgement than performance.

starving-artist

Artists are not always business people
Most artists and fund managers throw all of their resources into their craft. If I am honest, I know I am guilty of the same. The world seems to be divided: there are salespeople and there are product people. You can focus on sales or you can focus on product quality. The solution is to hire someone you can trust to run the business because you are obviously distracted by focusing on running the product. As in the art world, it is hard to find someone who understands the industry under the correct optic. Asset management is an industry of small businesses. When you speak with the Global Head of Fund Distribution at a top 10 global asset manager, the language and approach is completely different. Which leads us to our final comment….

There is a gallery for every artist
Gallery owners are either speculative or established. Sotheby’s typically have blockbuster artists that sell at a premium, while the art gallery on the corner will more likely try to find smaller, up-and-coming artists. However, there is a market for everyone. Many fund aficionados don’t want to simply follow the crowd and invest in the same funds as everybody else. If an allocator can identify value in an unknown manager, it is a major coup; simply because they took a bigger risk and it paid off.

Allocators talk and learn from each other. This is why funds receive piggy back allocations the same way artists attract interest. Some of the best, most respected artists started their career selling their art at a local restaurant. Many managers start with friends and family. It seems natural and with all business: If you have a quality product, run a good service business, and understand the customer, over time the business will thrive.

Comments

  1. Glenn Hanson says:

    This is a great piece of writing. Thanks for sharing.

    My takeaway is to think about why the allocator has to have me. That’s the easy part. Now putting it to the test is where the rubber meets the road.

    Glenn

Comment