PRWeek: Investment funds need to educate
Bernie Madoff and Sir Allen Stanford, whatever else they may or may not have done, have delivered a massive blow to the reputation of the global asset management industry. Add to that the diminished returns posted by legitimate funds, and you have kicked away the props of investor confidence.
Essentially, belief in financial service brands has collapsed. In the past, the building blocks of these brands were trust and delivery – trust in the managers of the fund and their ability to deliver. In a world of Madoffs and Stanfords, trust has disappeared and the track record looks distinctly potholed.
The good news is all of this leaves space for new financial service brands. This next generation of brands, however, will need to be like Caesar’s wife – beyond suspicion. It is no longer good enough for investment managers to say ‘trust us’; to regain investors’ confidence, they will need to explain why they should be trusted.
The key to re-founding brands is education. These days, investors are spooked. They need to regain confidence in funds. There is an increased demand for real information – readership of both the Economist and Financial Times are reported to have increased, for instance – which suggests that the desire to be educated about investment is there.
Investors need to understand the different fund strategies and the range of risk – from, on one end of the risk continuum, the low volatility, lower return funds that protect capital above all else, to, at the other end, the higher volatility, shoot-out-the-lights funds that take higher risks. Above all, the new brands should emphasise risk adjusted returns. One of the failings of investment products in the past was that they sold returns, not risk, which led to some very unhappy investors when the markets went south, taking the higher risk funds with them.
There is growing anecdotal evidence that investors believe that beta should be fairly cheap, but that alpha should be paid for. Among those who are very engaged in how to invest, there is an understanding that beta is fairly simple and alpha is considerably more complex.
Now is the time to educate the market. Investment funds need to take responsibility for explaining to investors, journalists and the general public how to invest in a sophisticated way and specialist financial PR has a central role in this effort.
Anthony Payne is Founder of Peregrine Communications.