3 Ways Consolidation in the Consultant Industry Creates Roadblocks for Emerging Managers Part II of II

In the first part of the this article we discussed the three roadblocks emerging managers face in light of the consolidation that has occurred in the consultant community.

They are:

  • Roadblock #1: Mergers Delay Manager Search Activity

  • Roadblock #2: Growing Bias Toward Multi-Strategy Firms.

  • Roadblock #3: More Competition for a Smaller Piece of a Shrinking Pie

So, What’s Next?

In our opinion, the takeaways are clear.

First, the institutional sales cycle has lengthened, from 9-12 months to, in most cases, 2-3 years.  For more established firms and those with financial strength or flexibility, weathering this new reality is possible, though undesirable. For emerging firms with lower AUM or a small roster of clients, this lengthened cycle may prove an existential threat.

Second, there are fewer searches than ever, with most of that activity devoted to replacement searches, rather than allocations of new money. (At Arrow, 13 of the past 15 new accounts awarded to our managers were replacements).

Investment managers and third-party marketers cannot ignore this changed landscape. While there may be some comfort in yearning for the “good old days,” it is counterproductive and, in our view, a waste of valuable time and resources.

To grow or even survive, we need to adapt to the evolving market and adjust our expectations accordingly.


What is the Path Forward for Emerging Managers?

We believe it begins with finding experienced and dedicated sales professionals capable of telling the “right” story and having the insight to develop and execute a thoughtful, professional distribution process.

Emerging managers, and those of us who represent them, need to start playing three-dimensional chess; identifying where the new and expanding markets are located and finding ways to target them effectively.

We need to better account for the new realities which constrain our buyers and gatekeepers, always listening to both what’s said and what’s left unsaid to maximize our value-add and work to address their concerns.

Most important of all, we need to offer the necessary vehicles, competitive fee structures, act with a sense of urgency and be ready to transact on opportunities presented to effectively navigate through the industry’s disruptions.  If you’re not ready, your competition will be!

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Written and submitted by Ken Rogers and Steve Rubenstein from Arrow Partners. You can read more articles at www.arrowpartners.com/articles.

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