Staying on Track in Building a Money Management Business In recent years we have continued to see the emergence of many new start-up firms in the asset management industry which are seeking to build an institutional quality business. Often these firms have been launched by people with experience in the institutional marketplace, but many of the founders of these firms have come from investment banking and other non-traditional areas of the financial world. Even for those with institutional experience though, I find that there are a number of issues that either limit growth potential of these new firms or can result in failure if not properly attended to. In my experience, some of these issues seem to center on compliance, people and process, and marketing. Let's start with the most dramatic example, an SEC audit. From period to period the SEC displays particular sensitivity to issues and it is up to the management firm to be attentive to the changing compliance landscape. Obviously, investment performance will largely though not exclusively be a key determinant of the success of a new manager. While, most start-up firms are acutely aware of the importance of performance, I mention it here because it touches on the importance of having a process that is repeatable. This is believed to be the only way that prospective clients can have any faith that their historic performance will continue in the future. A portfolio manager usually can’t control their performance outcome but they can definitely control the process used and a sound process can improve the odds of success in generating strong performance. But process is not the end of it. People matter. I used to work with a firm that has been around for 40 years using almost exactly the same process. However the investment performance has varied widely through time as the people have changed. People need to be able to make the link between past process and people and current process and people in order to have faith in the linkage between your historical and future performance. Marketing-this is the biggest hurdle for new managers. Clients, prospects and consultants typically try to simplify their manager selection process because of the daunting number of capable managers out there. As a result they appear to be reliant on simple checklists which ignore all of the nuances that a manager brings to the table in explaining their unique approach to money management. A money manager has to help these gatekeepers to first, tick the box, and then explain the nuances of the investment approach and hopefully encourage consultants and prospects to modify the box to reflect the money manager’s justifiable, demonstrable beliefs. If money managers take this more measured approach and have a dialogue rather than a debate, this can go a long way to embed their investment approach in the minds of consultants and prospective clients and turn them into allies and advocates for the manager in the marketplace. It may be frustrating for money managers to learn that people see them as performance generating machines, not as artists, and money managers have to work hard to prove that they are not a commodity. Marketing is not a necessary evil! While marketers will never have deep product knowledge - they do have a skill worth investing in. People won't just "get" what a money manager does. The money manager needs to have a tight but complete story about the source of their alpha. People expect a certain level of consistency, accuracy and timeliness in all of the information that they receive from a manager in order to have trust in your integrity. Money managers sometimes fail to remember that they don't have the right to change anything or everything about their business on a whim. And when changes need to occur or do occur, clients and their consultants need to be informed truthfully and promptly. While there are many ways to fail at a business, the areas of compliance, people and process, and marketing are three of the most common blind-spots for outstanding investors who are attempting to build their business. Russell Campbell Russell1@vzw.blackberry.net (312)343-0079