Amid Performance Woes, the Hedge Fund Industry Wisely Turns to Investor Relations

Financial CRM May Help Hedge Fund Managers with Investor Relations and Fund Performance

The hedge fund industry is facing something of an identity crisis at the moment. Slumping performance figures and investor revolt against the standard “2 and 20” fee model is forcing a shakeout: 291 hedge funds shuttered in the first quarter of 2016, offset by only 206 new funds started up, according to fresh data from Hedge Fund Research. Last year saw the most closures since 2009.

Survivors of the fallout are asked to slash costs and explain again how they outperform the market net of fees. Over the past five years, hedge funds provided investors a measly 1.7 percent return, according to the HFRI Fund Weighted Composite Index. Had that money been invested in the S&P 500 instead, the average annualized return would have been 11 percent.

If things don’t improve, expect more hedge fund outfits to struggle during fundraising. Already the $300 billion California Public Employees’ Retirement System (CalPERS), seen as both a bellwether and pacesetter for other institutional investors, has left the sector. Other big-name investors, including MetLife, American International Group and the New York City pension plan are reportedly set to do the same.

Which makes the timing of a new release from the Alternative Investment Management Association (AIMA) so important. Last week, the hedge fund trade body published an investor relations best practices manual that touches on everything from pre-meeting planning to on-boarding procedures to crisis management. The guidelines are only being made available to AIMA members, but a scan of its executive summary hints at just how much thought and effort went behind its creation.  Continue Reading →

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Three Basic Mistakes That Can Derail Cloud Software Adoption

Cloud Computing Best Practices for Salesforce for Financial Services Industry

The great news for customers of a Software-as-a Service (SaaS) product is that the vendor is incentivized for your success, since you pay as you go. A good SaaS provider backs their product with a solid customer success program to make sure their customers use the product. That doesn’t mean customers will always be able to successfully use the product. Sometimes, lack of enthusiasm from the customers’ side can become a stubborn barrier to adoption.

I manage the Success Team at Navatar and I can proudly say that 95% of our clients are successfully on-boarded to our cloud platform. We see some common themes across the ones that don’t. Here are some of them:

1. Lack of leadership buy-in:

Change is difficult. If senior leadership is fully behind the rollout, they can generally push through the message to the entire team. We have seen scenarios in which adoption never occurred as it was not mandated. Most people continued to do their day-to-day tasks as a new product meant additional workload.

If senior leadership shows interest in the new product, everyone pays attention. It really works when management can set usage targets for employees. I have also seen quite a few of our customers give out usage awards, based on employee activity in the new system. The goal is for employees to recognize that the rollout is important to management.

Continue Reading →

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Three Rules Private Equity Managers Break When Engaging M&A Advisors (Part 1/3)

How to Improve Private Equity Deal Sourcing

You would be forgiven for believing that most private equity deals are sourced independently given the amount of time fund managers spend describing their “proprietary deal flow”, a persistent industry catchphrase. In fact, it is intermediaries that are the biggest deal flow spigot. That’s truer now than ever – a trend not lost on investors, who now pepper managers with questions about their relationships with investment bankers and brokers during marketing meetings. Managers not very good at engaging intermediaries not only risk losing out on prize deals, but increasingly so capital commitments too.

So how can managers improve their outreach and relationship with M&A bankers?

It’s a question we posed to four of the best intermediaries in the field as part of a wider roundtable on deal sourcing strategies, a conversation co-moderated by Blackford Capital’s Martin Stein, who provided the conversation crucial buy-side perspective.

Three key lessons emerged from the roundtable discussion, each taking the form of a common rule managers should follow (but too often don’t) to build a strong working relationship with intermediaries. The first rule below, with the other two shared in subsequent posts over the next two weeks. Continue Reading →

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Investor Relations Becomes the X-Factor in Alternative Assets Fundraising

Private Equity CRM. Hedge Fund CRM.Alternative asset managers have seen their ranks explode over the last several years, due to a perfect storm of low interest rates, strong corporate growth and increased bank regulation.  The number of active private equity firms has spiked 143 percent, while the number of active VC firms has rocketed  173 percent in the last 15 years. Due to all of this competition, differentiation has never been more important.

The best performing fund managers, surprisingly, are not the best fundraisers. According to Chestnut Advisory Group, good communicators outperform top investment performers by a ratio of 4-to-1 when it comes to raising new capital. The ability to differentiate and effectively convey your message to the right investors has become extremely critical to fundraising success.

Jane Morris, managing director with the private placement firm Liora Partners sums up the current state of private equity fundraising: “Fund raising is not a short term activity; it’s an ongoing, never ending process.  You are either actively seeking new investors, pitch book in hand, or you are laying the groundwork for your next fund raise.”

To effectively establish your brand with investors it’s important to maintain a highly focused, tailored strategy that connects with their investment goals.  This isn’t rocket science. Most fund managers already know what they need to do. The challenge typically is in the execution;  fund managers aren’t necessarily the best marketers.

In our work providing investor relations technology to hundreds of alternative assets firms, we have seen some common themes emerge.

Establishing Investor Relationships

Fund raising is not one size fits all. Funds need to identify their target investor population and understand investment profiles.  Their investment size, industry/area of focus, risk appetite, past investments, communication preferences, etc., are all critical. The information enables IR professionals to develop a very clear profile of what kinds of opportunities will resonate with different groups of investors for communication targeting. Continue Reading →

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Eight Questions That Alternative Asset Fund Managers Must Ask Before Hiring a Placement Agent

Placement agents are in vogue.  There are tens of thousands of money managers and alternative asset fund managers that are totally dependent on them. In 2015, more than 50% of private equity funds that closed used a placement agent, according to Preqin.

It isn’t hard to understand why. Fundraising requires an intense focus over 17-18 months, not to mention specialization, relationships and physical proximity. A fund manager devoting more time to the fundraising process has less time to focus on implementing the fund’s investment strategy.  Furthermore, placement agents have a much broader reach and more up-to-date investor knowledge than most managers could achieve without a large internal marketing/sales team.

What Private Equity & Real Estate Funds Should Look For in a Placement Agent

Placements agents range from specialized divisions of large brokerage firms to small and midsized independent firms. The larger firms work on six to ten fundraising mandates per year. Therefore, they prefer to undertake mandates that represent the ‘low hanging fruit’—a fund that’s easily marketable. Others are specialized based on certain asset classes, investor type, offerings, or geography.

To be successful, placement agents must leverage the intelligence from their previous mandates and track institutional investors and their investment preferences. Most of them use Navatar to manage multiple mandates and stay on top of investor activity.

We spoke to some of our placement agent customers to get their perspective on what it takes for a placement agent to succeed when working on a mandate.

Download this free eBook, “Eight Questions That Alternative Asset Fund Managers Must Ask Before Hiring a Placement Agent,” for the insights gained from these conversations.

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How Cascade Financial Advisors Became a Leader in Client Service Using RIA Cloud Technology

Salesforce for Financial Advisors and Wealth Management RIAToday’s ever more tech-centric world is changing the game for both clients and wealth managers. And client service is one of the key areas where the battle for a client’s wallet and mindshare is being waged.

“For us, client service and advisor service processes are really the most important and the most complex pieces of what we do on a day-to-day basis,” says John Van Sant, President, Cascade. “It’s also obviously one of the most time sensitive parts of our business as well, and a huge part of our value proposition.”

When Cascade, a boutique wealth management firm managing around half a billion, recognized that they wanted to differentiate by providing a better level of service to their clients, they decided to focus on accuracy, not efficiency.  John led the charge, with the goal  for a more consistent client and advisor experience.

“Like most small mid-size firms that are in the industry, we have five key functional areas- marketing, business development, investment management, client service and advisory service.  Like most medium-sized businesses, we’re obviously limited on resources when it comes to personnel versus some of the larger firms.  So in order to improve the effectiveness and efficiency most firms like us must have a fully integrated turnkey platform that integrates all of the different functional areas,” according to John.

Cascade picked Navatar One for Salesforce, as the hub for the turnkey platform, to help create connect all the functions.

The results? John Van Sant describes how Cascade built a model with consistent processes, as well as showcases exactly how key functions such client onboarding, service requests, client meetings etc, must function for an advisory firm, in this recorded webinar video.

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Upcoming Webinar: Don’t Lose the Deal – Proprietary Psychology is Different

In a forthcoming Webinar, the Exit, LLC Team  warns “Don’t Lose the Deal – Proprietary Psychology is Different.”  Exit, LLC is speaking to 800-900 founder owned businesses a month and is focused on finding new opportunities for their strategic buyers and private equity firms.

Their first tip is that you talk dramatically differently to a business owner than you would to an M&A firm.  Sure, you are eager to get answers but watch out, if the conversation starts sounding like an interrogation, you could irate your target and lose the deal.

Some of the things you will hear in the webinar are how to make the right first impression and how to figure out the best time to approach your target company.  They also have a lot to say about creating an origination strategy with the discipline and metrics you need to build a large pipeline and gaining more high quality opportunities.  The webinar is free and you can register for either session:

March 29, 2016, 10:00 am EST  - RSVP TODAY >>

March 31, 2016,  2:00 pm EST  - RSVP TODAY >>

 

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Johnsons Corporate Goes High Tech to Target 1000+ Buyers And Close M&A Deals in 5-8 Months

Mergers & Acquisitions Software

The Johnsons Corporate team pioneered the Six Stage Sales process that helps them systematically cast a wider net when seeking buyers for businesses. Thanks to their adoption of sophisticated M&A technology, Johnsons Corporate is well positioned to be a leader in Australian mid-market M&A, widening their targeting ability to more than 1000 buyers and closing each deal within 5-8 months.

When it comes to selling mid-market businesses, Johnsons Corporate doesn’t believe in taking shortcuts. The Johnsons Corporate Six Stage Sale Process, developed and refined for over 50 years, is based on the conviction that the sale and acquisition of mid-market businesses warrants a systematic approach to cast the net over a broader pool of prospects in more commercial and geographic markets than others would even contemplate.

In practical terms, the Johnsons approach translates into custom marketing campaigns to 500 to 1000 targets (as opposed to 30-40 targets that most corporate advisory firms work with), and it’s central to how they have been able to create a unique position in the Australian mid-market M&A marketspace. Continue Reading →

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The Future of The IT Bubble And CIO In The Age Of Cloud And Mobile

Salesforce for Financial ServicesThere’s something wrong with IT.

Most business people  are frustrated because IT can’t even understand their issues, let alone solve them.

“IT organizations somehow forget that people come before technology,” says Jonathan Feldman. “Like a raging infection in the corporate body, IT is continually at war.”  Feldman, a CIO himself, believes there’s something wrong with any department that seems to have a male dominance. It suggests an elitism, an anti-collaborative stance.

IT has long been tolerated as a costly but necessary line item, but that may be changing. Businesses are under pressure to deliver results and they have little patience for drama. They want IT to get its act together.

Is this possible?

No, says Feldman. “As with a dysfunctional relationship that needs to end before something really bad happens, I have a proposal: End it. It’s not working, folks. It’s super-dysfunctional, and we all know it.” Continue Reading →

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Multitenancy – The Odd Sounding Cloud Tech Term that Changes Everything for Financial Services Firms

Private Equity CRM

“Think of an ice breaker ship ploughing through frozen seas and that will give you some idea of what multitenancy is doing to the old IT model,” says Navatar CTO Rexlo Joe, who Salesforce recently featured as a success story.

Multitenancy is a architectural design in cloud systems, which allows the vendor to share resources between clients. It allows the vendor to eliminate mundane, repetitive tasks and focus their time instead on adding new features.

Not all cloud products are multitenant, though. A legacy vendor with an on-premise product never invests in multitenancy since that involves developing a completely new product and a new business model. It is much easier for them to turn their legacy system into a single-tenant product (each customer is hosted separately).

“If you’re not buying a multitenant product, you’re buying a product that will be frozen in time, while your competitors will always have the latest technology,” says Joe. Continue Reading →

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Public Cloud Provides Most Data Security For Financial Services Firms

Salesforce for Financial Services, Financial Services Cloud

Corporate IT continues to argue that public cloud security cannot be trusted. They believe, mistakenly, that they can keep data more secure than the public cloud.

“We live in a world where data center breaches are in the headlines almost monthly, much to the consternation of corporate IT — the same corporate IT that fears the public cloud due to fears around data security. The truth is that the public cloud is more secure than the typical data center, and IT would get better security if it got past its prejudice against the cloud,” says David Linthicum, in his recent article.

Look at the recent hackings of Ashley Madison, Hilton and plenty of others. I’m sure they all deployed IT security specialists and spent a lot in managing security. But it wasn’t enough.

Because IT manages its own data resources, it believes it’s doing a better job than other people might, says Linthicum — especially those people at those cloud services where security practices are opaque. But it’s simply not true. Cloud providers have better security mechanisms in place and are more paranoid — and attentive — to security risks throughout their entire stack. Continue Reading →

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Meg Green & Associates Describes How Financial Advisor Cloud Technology Helps Them Lead in Client Service at T3 Wealth Conference

Barrons listed top financial advisory, Meg Green & Associates, plans to dramatically grow beyond its Miami base.  At the recent T3 Enterprise Conference that we Financial Advisor CRM for salesforceattended, the firm’s president, Todd Battaglia, talked about setting the stage for growth while simultaneously improving customer service, the firm’s infrastructure and compliance.

Battaglia says he initially saw Navatar One, built on the Salesforce platform, as primarily a technology refresh to improve the user interface, upgrade security and business continuance.

“One year into the partnership, we realized Navatar One is more than a software, it’s a connected growth platform that’s taking the DNA of what we do as a firm and embedding it into a technology system to make us better at what we do,” he said.

According to Battaglia, Navatar One delivers dramatic improvements in three crucial areas for Meg Green & Associates: Continue Reading →

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How Financial Advisors Can Avoid Blowing Client Meetings

Advisors all share the same #1 priority: their clients. There is nothing they want to avoid more than to look bad when getting in front of clients. To ensure that client review meetings run smoothly, they, along with their staff, go through numerous time consuming steps that require attention to detail. Still, this is also a process where advisors commonly experience frustration and inefficiency.

In our recent webinar (see below), we covered this topic in depth.

There are several areas where advisors and their staff commonly experience inefficiency and frustration, but arguably the costliest activity is executing client meetings efficiently and effectively.  Nine out of ten advisors, including those using Navatar One, identify the client meeting process as the activity where they want to improve efficiency.

Here’s why:

-   Advisors cannot afford to screw it up. Being disorganized or erroneous when in front of clients can create distrust, convey incompetence, and ultimately lose clients.

-   There are often many tasks and detailed steps involved, often involving several people and multiple systems, which requires tight coordination and communication.

-   The average practice services 200-300 households. This equates to executing hundreds of meetings per year, which – when combined with the numerous tasks and required accuracy and attention to detail — results in the execution of client meetings being the highest percentage of staff consumption on an annual basis.

-   The frequency by which other activities are performed often pale in comparison. (Hint: compare how many meetings you had last year with how many new clients you on-boarded or how many service requests you handled.)

Read full article here.

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Alternative Assets Fundraising: Investor Relations Matters More Than Fund Performance

A strong track record of investment performance is always the most important factor for asset managers looking to attract capital: that’s what the conventional wisdom would have us believe. But a recent Chestnut Advisory study reached a very different conclusion. According to an analysis of asset flows and testimonials by institutional investors, performance is actually lower on the list of deciding factors.

What’s at the top? Effective investor relations.

Asset managers who establish trust through communications and support appear to be more successful at raising money than those who perform well but fall short in client outreach and education. In fact, 92% of institutional investors surveyed said that they consider IR to be integral to an asset manager’s mission. Those firms that lead on the communications front outpace IR laggards when it comes to retaining capital and leveraging client relationships as well:

The survey shows that trusted asset managers raise more assets, are hired more quickly and are fired more slowly than the general population of asset managers. They also have an easier time cross-selling and up-selling their clients. Continue Reading →

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Incoming. More stomach-churning volatility today means more worried client calls.

U.S. markets were down nearly 3% today amid continuing worries about China. When asked by Bloomberg TV to describe in a word what’s going on, James Bianco of Bianco Research said this: “Uncertainty and Fear.”

It looks like this latest round of market volatility may be with us for a while.

If you’re an advisor, check out our newest feature, VAX. The Navatar VAX Rating gives advisors and staffs a simple but effective way to capture and manage the real world, real-time anxiety levels of each client. Clients are rated as “highly anxious”, “somewhat anxious”, “somewhat resilient”, or “very resilient” to market volatility events.

This tool enables an advisor to segment the client base and personalize communications based on how reactive and fearful they are to market downturns. And our wealth clients tell us they are fielding lots of calls from worried clients right now.

We are also working on rolling out an institutional version of the VAX feature for hedge funds and other segments.

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Clients Look to Financial Advisors for Reassurance Amid Market Volatility

The precipitous declines in U.S. stocks and other global markets in the past week brought out the fear in many investors. On Monday, when the S&P 500 closed down 4% for the day and 11% from its May 2015 high, financial advisors found themselves fielding calls from jittery clients wondering whether to sell.

The NY Times describes one advisor’s day amid the tumult:

By 2 p.m. Monday, Gregory J. Blank, an independent financial adviser based in New York, had already fielded nearly 20 phone calls from anxious investors. He handles assets for about 200 clients, a mixture of younger adults and retirees.

“They see it in the news,” he said. “They get worried. They call.” Mr. Blank said that the older investors were more concerned, since it was harder for them to replenish whatever they had saved up for retirement. But the worst thing to do right now is to panic, he advises them.

In Financial Planning, advisor Kimberly Foss recommends reaching out to clients before they have a chance to panic, and urging them to stay the course.

When volatility strikes it’s important to reach out with information and reassurance rather than sit back and wait for worried clients to call you.

The Navatar View: The good news is that markets showed signs of rebounding on Tuesday, with the S&P 500 up 2.2% at midday. But this may not signal the end of volatility. When markets melt down, as they did over the past few trading days, advisors need to anticipate significantly higher call volume.

In times of crisis, it’s essential to know that your firm can handle those incoming calls and keep clients focused on their long-term plan. Even when markets are on the rise or holding steady, though, you can undertake outreach and education to ensure that clients won’t overreact when those market drops do happen.

This may be a good time to review the breadth of information you’re maintaining on your client base as well as your strategy for keeping them informed and engaged with their investment plan. A state-of-the-art system, such as Navatar One, which can automate this process, can help tremendously. When you can identify which clients may have more reason to worry when corrections happen – as well as those who have a tendency to worry even without reason – you can more effectively get ahead of the panic that market declines often induce.

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Smaller Private Equity Funds Well Positioned to Exploit Fundraising Boom

“The words fundraising and fast are not often found together in private equity. In the aftermath of the financial crisis, even the successful firms took years to raise capital. However, in the past 18 months, the most popular firms have raised funds so quickly that investors are struggling to keep up.”

Simon Meads, in his Financial News article, points out that major PE firms are experiencing hectic fundraising activity.  EQT and Blackstone are expected to hit the upper limit for their funds in just a few months – something that historically took a few years to accomplish. The time taken to raise funds is declining from an average of 18.1 months in 2013 to 15.8 months this year (the hottest are moving much faster).

“The phenomenon is the result of three factors. Distributions are flooding back from previous deals–meaning investors are racing to keep up with private equity allocation targets–while confidence about the long-term economic outlook is improving. But perhaps most critically, investors are more certain today about the managers they like and are concentrating their commitments with a select few. As a result, the popular funds are oversubscribed.”

Most observers agree that PE investors will continue committing larger sums of money to a smaller number of bigger, better known firms.

Does that mean that fund managers outside the top tier will be left behind?

The Navatar View:

Money is flooding into the asset class and investors are under pressure to do all the due diligence in a compressed timeframe. Despite their preference for bigger funds, investors may not have a choice if they do not stay ahead of the curve and act fast.

Which opens up a huge opportunity for funds outside the top tier. To tap this opportunity, however, the second tier funds must lead, not lag their peers, when it comes to in staying in front of investors. They need to be the best in class, in managing investor expectations and be on the right side of their LP’s regulatory framework very early into the fundraising cycle.

Smaller funds have an inherent advantage over larger funds. They are nimbler – they aren’t stuck with red tape or archaic tools. They have the flexibility to utilize state-of-the-art technology, such as Navatar Investor, to build the next generation fundraising machine.

We will have more statistics on their performance, in the next few months. Stay tuned.

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Will Financial Advisors Increase Allocation to Alternative Asset Funds?

Navatar - Financial Services CRM for SalesforceA Financial Advisor IQ article recently reported that FA client allocations to alternative investments have grown by close to 20% across wire houses over the past three years.  Seems like pretty strong growth, right?

Until you look at the data showing that alternatives still represent only around 5% of most FA client portfolios. Investment News warns that’s not enough to control portfolio risk, according to industry experts.  Among them:

“Ed Butowsky of Chapwood Capital Investment Management tells Investment News tepid allocations to alts do little to control risk. To make a difference, he says, you need 20% or more…’”

The article notes that alternatives (such as hedge funds that can offer portfolio protection against down markets) “will come screaming back in vogue” in the next market correction, but in the meantime advisers appear cautious about suggesting fee-laden products that have underperformed in the current bull market.

The Navatar View:

Investment News rightly points out that when markets ultimately correct, advisors may wish they had been braver in suggesting bigger allocations to alternatives.

But that’s easier said than done.

To effectively alter individual asset allocations across a large client base is a sophisticated operation.  Advisors who aim to lead not lag their competition need to be on top of their game when it comes to knowing each client’s needs, their risk appetite, their varied personal situations, etc.  And they need airtight compliance processes to move client portfolios into private capital markets.

In addition, they will need new and better ways to connect to — and evaluate — alternative products and investment opportunities.  Navatar has hundreds of alternative asset funds as customers and we know how difficult it can be to stay close to opportunities to invest in these (one of our soon-to-be-launched products will make this easier).

The bottom line: Winning in this environment requires ever-increasing sophistication.  Advisors need to expertly leverage tools and technologies that establish them as leaders as well as open up the right opportunities.   We get it.  As the #1 connected growth platform in the industry, we’re regularly adding functionality to help our clients drive their growth agenda.

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Allegiance Capital Gears Up For Strongest M&A Year

David Mahmood has grown Allegiance Capital into one the most active and dominant middle-market investment banks in the world.  Allegiance has closed on hundreds of transactions ranging up to $150 million in value, through their global network of deal professionals.  Their success can be attributed to Allegiance’s focus on maintaining an entrepreneurial mindset, but also to their embrace of state-of-the-art technology.  Allegiance is now poised for its best year ever complimented by the adoption of a firm-wide platform that has resulted in their ability to identify and close deals 20% faster, while doubling their documented pool of qualified buyers.

A serial entrepreneur, David created seven businesses in various industries, before starting Allegiance Capital.  Headquartered in Dallas, Allegiance has offices in Chicago, New York, Minneapolis and Monterey, Mexico. It also participates in Globalscope, a group of leading corporate finance and business advisors operating around the world, providing access to a larger pool of qualified potential buyers that many of its domestic competitors lack. Since its launch in 1997, Allegiance has closed hundreds of middle market transactions ranging in value from $10 million to $150 million in a variety of industries that include agriculture, business services, construction, retail, chemicals, energy services, healthcare, manufacturing, technology & telecommunications, and utilities.

Allegiance’s success stems in part from Mahmood’s experience and understanding of the entrepreneurial process. Many of the bankers and managers at Allegiance are former entrepreneurs, so they understand what it means to run a business. They are also very tech-savvy and understand how good technology and timely information makes the difference in a sale negotiation. Continue Reading →

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A Cloudburst of Financial Advisor CRM Options – What to Look For

CRM for RIAs, Wealth ManagementThe RIA business, being heavily dependent on client relationships, relies on efficient CRM systems.  Several legacy software vendors have traditionally offered CRM to financial advisors with mixed success. With the advisory market growing rapidly, newer cloud CRM vendors are bringing more options, in addition to forcing legacy vendors to upgrade their offerings – which is great news for the advisory business.

For instance, Navatar, a pure play cloud CRM provider, enters the space after their success in alternative assets and investment banking.  Navatar partners with Salesforce, the cloud poster company, to serve several financial services markets.

On the other hand, legacy providers, such as Junxure are also cloud bound. Junxure just launched their cloud-based offering.  Prior to this, Junxure had been selling client-server based CRM to advisors, which continues to be their main offering.

(There are some other options too. Custodians, sometimes provide CRM to advisors. So do horizontal providers such as Salesforce, Microsoft and SugarCRM, partnering with third-party consultants or resellers.)

The legacy and new CRM providers bring their own strengths.  The legacy providers, having worked with advisors for years, have an established customer base. However, coming from the client-server model, they are not known for innovation. They also maintain their client-server customers and, therefore, have to juggle both the legacy and new products – a bit of a distraction.

The pure-play cloud providers are very strong on innovation and servicing their customers. They bring the cloud DNA, having been deeply embedded in the subscription based business model. However, as newcomers, they still need to prove their value and earn the advisor community’s trust.

So, there are some trade-offs and it may not be easy to compare apples to apples.

Here’s my take on what to look for in the cloud-centric world if you are running an advisory business and evaluating CRM options. There are three important things to keep in mind, at a minimum:

I.     Look for a product that can cope with your growth. This one may seem obvious, but most people look at product features/functions before making a decision, anyway.  Depending on your size, focus (institutional/retail, types of products), as well as integration required into different custodial platforms, financial planning, or portfolio accounting systems, you will be able to shortlist two or three products that may have the potential to deliver. The important thing to assess would be how the product can accommodate your changing needs over time.  Is it flexible enough to support your business if you start, say, an alternative asset fund?

II.   Look for a product that won’t get frozen in time.  In the cloud world, the pace of innovation is fast, which means that the vendor must constantly improve the product. This is achieved through a technological concept called multitenancy (don’t worry, I won’t bore you with the geeky stuff). Multitenancy helps eliminate repetitive tasks and leaves the vendor with more time and resources to focus on product innovation (just the way the manufacturing assembly line brought drastic efficiency, so carmakers could spend more time improving their cars). Not every product is multitenant.  If you buy a product that isn’t, you may get frozen in time, while your competitors surge ahead with state-of-the-art products.

III.  Look for a vendor who is invested in your success.  CRM providers have traditionally been happy to sell you their product, before sending you to a consultant for fitting it to your needs. This model is changing in the cloud – the CRM vendor is expected to make the product work for you.  Unless the vendor is on the hook for ensuring your success, you will be spending money on consultants for years. The vendor must have a dedicated team devoted to your success and a solid track record to prove their credentials.

If you pick the right product, it will help you grow assets as well as make you more efficient. If you pick the right vendor, they will focus on their product as well as your success.

Good luck.

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For Private Equity Funds, Perfect CRM May Be The Enemy of Good CRM

Salesforce for Private Equity

“The best customer relationship management software for private equity firms is one that works for everyone – from the investor relations team, to the information technology department, to the deal origination group. It has to work across all of a firm’s offices, from the US to Europe to Asia,” says Chelsea Stevenson, in her article “Need for CRM Speed” within PEI’s Fund Administration and Technology Special Supplement 2014.

We agree. The ideal scenario for CRM is when everyone in the firm uses it.

However, the ideal scenario isn’t always achievable.  Private equity folks are often too busy to worry about getting trained on a CRM system.  Larger firms have teams across continents, making it challenging to get everyone to be enthusiastic about a certain technology.  In situations like these, the CRM decision inevitably gets postponed.

It shouldn’t be an all or nothing approach.  Firms are competing for investors or for investments, and the cost of a single lost opportunity, due to inefficient processes, can be high.  There should be more than one way to skin the cat, if everyone in the firm isn’t enthusiastic about a CRM.

Continue Reading →

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Can Cloud Computing End CRM Torture for Financial Advisors?

Cloud CRM for Wealth Management - RIAsWealth managers are struggling with CRM, even though they are an attractive market for CRM providers. Look at any industry blog and you’ll see stories about RIAs and independent advisors, who are sucked into becoming CRM mechanics.  They continue to pay CRM providers and consultants, throwing good money after bad, in addition to burning their own time doing system implementation. Can the cloud rescue advisors from CRM torture?

Here’s a typical example of what advisors face:  Dave Grant, who spent years trying various specialized CRM systems for RIAs, before implementing Salesforce, says in his blog post:

“I’ve tried to make my new RIA as heavily reliant on cloud technology as possible.  Anything that I could push into a cloud technology solution I have.  However, I’m still wrestling with one of my basic needs: a CRM system.”

Clearly, he is still struggling.  The reason for the struggle, as I pointed out in a recent article, is that the advisors’ interests aren’t aligned with the interests of the CRM providers or consultants serving them.

Conflicts of Interest

Let’s take a look at the interests of the vendors, starting with the CRM providers. A majority of them serving this market are legacy on-premises software providers who collect the big checks for their software upfront, after which they have little incentive to worry about customer adoption issues. Over the years, these CRM providers have talked customers into believing that their success (or adoption) is somewhat unrelated to the software manufacturers and best addressed by consultants. RIAs pay for the software and the CRM provider is off the hook. Enter the systems integrator, who is tasked with understanding the customer’s business and then mapping it to the CRM software. The RIA staff and the consultant work together, hoping to build a Rolls Royce, but often end up with a Yugo. Worse, many continue to throw additional money at the problem.

Recently, a few of the legacy providers have started selling cloud-based CRM. However, focusing on customer success is not in their DNA and they continue to operate like on-premises vendors, outsourcing customer success to others.

Then there are the big cloud providers like Salesforce, Microsoft (Dynamics), and SugarCRM. The challenge is that they are horizontal cloud providers — they approach every industry with a one-size-fits-all solution. Their focus is too broad to address any RIA-specific issues. The onus for success is passed back to the RIA, paired with a consultant.

But what about consultants? Aren’t they supposed to be focused on making RIAs successful?

In reality, most of the consultants who work with RIAs aren’t really consultants — they are systems integrators (SIs) who earn money customizing a system and charging clients by the hour. The more time they spend customizing the system, the more money they make. That means the wider the gap between the RIA’s needs and the CRM system, the happier the SI. Now, SIs definitely have their uses. However, they would be the last people interested in an out-of-the-box CRM that fits RIA needs.

In some cases, custodians and independent broker dealers, who are more aligned with advisor success, provide technology that includes CRM. However, custodians and broker-dealers are not in the CRM business, so they are again dependent on CRM providers and consultants to deliver the goods.

The Solution

There is new breed of vendor that is decidedly different — the vertical cloud CRM provider. Vertical cloud providers, such as Navatar, are not systems integrators or services firms, but pureplay SaaS CRM providers. They don’t charge by the hour. They usually offer a monthly-usage, fee-based, pay-as-you-go pricing model. They invest heavily in customer success because their survival depends on how well they serve their customers, which is where their interests are neatly aligned with the RIAs.

For the torture to end, however, the RIAs also own a couple of important action items:

First, recognizing the obvious: that fixing CRM isn’t their mission. They are in the business of money management. It’s the CRM vendor’s job to provide the CRM to support that business. If the CRM doesn’t work, and the vendor isn’t motivated to solve their CRM issues without getting the RIA to pay, the RIA is dealing with the wrong vendor and needs to find the right vendor.

Second, finding a CRM vendor whose interests are aligned with their own — a.k.a. a vertical cloud CRM provider. Most CRM vendors nowadays label themselves as cloud providers, making it difficult to separate the real from the fake. Here are some simple qualifying questions: Does the CRM provider also offer an on-premises version of its solution? Does the CRM solution require paying for professional services? If the answer to any of these questions is yes, the RIAs can safely stay away from those vendors, if they want to escape CRM torture.

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Technorati: Navatar’s Cloud Computing “Disrupting” Financial Services Industry

Salesforce for Financial ServicesAs Technorati reports, Navatar Group has produced some “groundbreaking” technology that “has all the markings of being a disruptive, game changing one” for the financial industry.

How is Navatar’s technology disrupting Wall Street? By providing CRM systems with built-in connectivity that give financial professionals new avenues of access to people, information, and services. Previous generations of CRM systems were self-enclosed, isolated, and static.

The new generation of cloud-connected CRM systems enable financial services firms to do business in ways that were not previously possible. For example, connected CRM systems turn the deal-making process on its head by bringing deal opportunities directly to dealmakers—literally at their fingertips. Traditionally, finding deals and investors required a lot of research and legwork.

Creating new ways of doing business through cloud-based connectivity is what Wired describes as “one of the most exciting and transformative ball games in the history of modern IT.” Cloud-connected systems, Wired explains, not only reduce the total cost of ownership for the software systems we have today, but enable “entirely new systems — powerful, game-changing systems — that simply were not possible before.”

Cloud-connected CRM systems open up new business opportunities to all areas of the financial services industry—including wealth management, asset management, corporate development, investment banking, hedge funds, real estate, and venture capital.

Disrupting through connectivity is only part of the story, however. To be successful, cloud CRM vendors must also be committed to helping their customers succeed. This requires a new model of customer care that ensures that clients are successful in their use of the cloud-based systems.

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Is Cloud Computing Secure for Financial Services Industry?

Cloud Computing for Financial ServicesMy recent article for Seeking Alpha predicts a significant uptick in cloud adoption in financial services, thanks to the arrival of industry-focused cloud providers,  improving trust in cloud security, and a bunch of other factors.  Not everyone agrees. Dissenters argue that cloud security cannot be trusted.

Here is an excerpt from one of the comments on the article:

“As a communications programmer, I tell you that most customers have not fully realized the risks inherent in the current implementations of multi-tenant cloud computing. Those can be cleaned up eventually, but they CAN NOT BE CLEANED UP COST EFFECTIVELY. The encryption required means non-trivial CPU usage. So, you’re faced with either doing whatever you’re doing insecurely, or doing it with dedicated hardware. The multi-tenant, elastic model is simply broken from a security and efficiency perspective.”

This is a typical argument we hear from old school IT or legacy vendors such as Oracle. They tell you multitenancy is bad for you, either because they haven’t upgraded their skills (and are fighting to save their jobs) or because they want to sell you dedicated hardware.  CPU power is commoditized and getting cheaper every day, so the “non-trivial CPU usage” claim doesn’t hold water.

In fact, I realized that the case against cloud security now rests heavily on the recent hacking incidents, as some of these comments suggest:

“Target and others are just beginning to learn how difficult it is to do security correctly even on dedicated closed systems.”

“… the most critical data needs to be kept inhouse. The recent string of hacking cases against Target, Niemen-Marcus, and Michael’s should demonstrate that to everybody.”

Clearly, Target’s data was kept inhouse and secured by their internal IT.  Turned out that wasn’t the best security, after all.  Another person, who commented on the article, highlighted the irony:

“The irony here, regarding financial services organizations, is that they are breached constantly. I’ve had every major credit card I own compromised in the past 18 months. These banks also have more down time due to weather, outages, failed upgrades, etc than would never be accepted in the public cloud.

If you understand how public clouds like Amazon Web Services handle availability, you wouldn’t be concerned about outages. For an in house or on premise service to have the same type of capabilities related to availability is cost prohibitive. Banks are already severely wasteful with their data center resources.

The primary reasons banks haven’t moved to public cloud yet is more around Public Relations, sunk investments in under-utilized, owned infrastructure, and, well, complacency.”

Security arguments notwithstanding, Gartner asserts more than 60 percent of banks worldwide will process the majority of their transactions in the cloud by 2016.  Ovum claims capital markets will accelerate their adoption of cloud this year.  And Oracle’s CEO declares that its main rivals are no longer IBM and SAP, but instead they’re Amazon and Salesforce .

All of this suggests that despite the security concerns, the cloud is gathering momentum within the industry. If you are seeing a different trend, would love to hear from you.

Alok Misra

 

 

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Are Private Equity Deal Makers Seeing Increased Competition?

“Competition is heating up in the world of private equity,” says William Alden in his Dealbook article.  According to him, private equity executives are noticing an increase in competition for deals in the last year or so. Several say that, in the face of competing bids, they have been forced to sit on the sidelines more often than they would like.

Is this competition primarily due to low interest rates and generous bank financing, as the article suggests?  To a certain extent, that is true. However, there are other important factors at play, that may be worth exploring, as well.

To quote the article further:

“We’ve been a little less active than we would have liked to have been in the last 18 months,” Joseph Baratta, the global head of private equity at the Blackstone Group, said at a venture capital and private equity conference. “We’re not finding that edge. We’re being a little more disciplined on that value metric.”

Like Mr. Baratta, Candice Szu, a senior vice president at the Carlyle Group, emphasized the importance of finding an “edge” in competitive situations. That often means bringing a particular expertise in an effort to make an offer more compelling, she said. “It’s something we always ask ourselves: What can we bring to the table that’s a little different?”

Why do Blackstone and Carlyle need an “edge,” one may ask?  Firms like these traditionally had unmatched resources and reach which, in the past, helped them uncover deals that others couldn’t.  However, that has changed.  Today, smaller private equity funds are also able to get to the same opportunities, thanks to social media and specialized deal marketplaces (such as Navatar Deal Connect).  Smaller funds are getting savvy at securing a large inflow of deals and becoming efficient at processing  them rapidly, thanks to the latest cloud-based tools and databases, that can easily match or exceed the infrastructure of larger firms.  Armed with the new tools, they are able to level the playing field with a more “personalized” approach, causing larger players to have to find an “edge” to compete.

A good example of how smaller firms are competing, is outlined by Martin Stein (Managing Director at Blackford Capital), in this webinar.  Blackford, a middle market private equity firm focused on manufacturing & distribution, has mastered the science behind widening their reach to get in front of the right deals.

In addition, there are margin pressures, as the article points out.  Private equity managers must find cheap investments at a time when stocks are near historic highs.

Though private equity firms will continue to hunt for bargains, returns may not be as high in the future as they have been in the past, David M. Rubenstein, a co-founder and co-chief executive of Carlyle, said in a keynote speech on Sunday.

“The days of getting fabulously rich in private equity may be a little bit behind us,” Mr. Rubenstein said.

Are the low returns a temporary phenomenon, due to interest rates and other factors? Or are they here to stay? I’m no private equity guru, so I will leave that to the experts.

But I do believe that competition can’t be all that bad.  It may lead to better times ahead, for the industry.

Alok Misra

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