We spoke to Tom Kellerhals of the Westminster Group (www.wgpeople.com) about his firm’s distinctive niche: placing sales & marketing professionals in asset management firms. A solid half of his work is in alternative investments.
How did you end up in this line of work?
I started my career in, of all places, the grain industry, working for a soybean-processing company in the Midwest. From there, I turned into a commodity broker, got licensed in securities and was a commodity and stock broker for Dean Whitter. I became very interested in managed futures, CTAs, and went to work for Commodities Corporation, now owned by Goldman Sachs, and one or two other large CTAs.
My wife started a recruiting business 13 years ago, and eight years ago I decided to leave the CTA world and become a recruiter. We’re a very small shop — there’s only five people — and we are in a very narrow niche.
Some of the folks that are in the hedge fund world today actually started their careers in the CTA world. As part of that trend, I started recruiting, not only for CTAs, but for global macros and other hedge funds, and then fund-of-funds. Today half of our business is alternate investment shops, including real estate and private equity. The other half is in the long-only world. We concentrate on marketing, marketing communications, sales, and client service. Unlike many folks in the industry, we go out of our way to distinguish between marketing and sales.
Additionally we cover hedge-fund-of-fund analysts, which is an odd exception to the rule around here. When I worked for a CTA in a sales and marketing capacity, I would call on many analysts who were looking at our CTA for inclusion/exclusion into what was then known as a commodity pool — a fund-of-fund grouping of CTA managers. So I was quite familiar with what those types of analysts did, and was comfortable pursuing that kind of business. Many of those people have gone on to become analysts & due diligence folks at hedge fund-of-funds, so it’s just an odd series of circumstances.
Tell us more about distinguishing sales and marketing.
The asset management industry — not just alternative assets, but the long-only world as well — has a very strong propensity to use the word marketing, when many times they should be talking about sales. Other industries such as autos, software, consumer goods, don’t seem to have this problem. I don’t know if there’s a negative connotation to sales that is attempted to be mitigated by using the term marketing, or what the genesis of the problem is.
There are major differences between marketing and sales. Simply put, a salesperson has direct contact with the ultimate investor or his/her representative, or the entity’s representative, i.e. a consultant. Whereas, a marketing person generally does not have client interface, and is concentrating efforts on tools, programs, products, branding, image, PR, advertising, all of those things that go on behind the curtain, in order to make that salesperson more effective, and the products that are in that salesperson’s briefcase, more appealing to the ultimate client. That’s it in a nutshell.
Marketing pairs with communications, and sales pairs with client service.
Yes. Marketing consists of functions such as branding, product development, product management, communications — before, after and during the sales process — responding to RFPs, pitch books, various marketing communications, various market commentary that clients would get.
Sales/marketing in the hedge fund arena is severely constrained, whereas it’s not nearly as constrained in the long-only world. You still have lots of regulators looking over the sales and marketing folks’ shoulders, but it’s even worse with respect to hedge funds. But nonetheless, there still are marketing functions that go on inside a hedge fund, or a hedge fund-of-fund which are clearly not sales.
In smaller funds, roles are less distinct?
Yes, that’s very true. This is basically a matter of growth and development within a fund and whether, as it grows, it wants to grow this talent inside or use outside vendors. Hedge funds are great at outsourcing everything possible except trading. So there’s a propensity to use third party marketers, someone not on the staff of the hedge fund, who is out on the hustings trying to raise money. The term is third party marketing, but actually they’re doing sales — though they could be doing marketing functions, such as monthly marketing commentary or monthly financial commentary. And there are firms that respond to RFPs issued by consultants. So a lot of these functions can be outsourced.
At any rate, if a firm grows to a certain point — $300 million, $500 million, one or two-year track record — they tend to stop having the principals of the firm do all of the sales and marketing functions, assuming they haven’t been outsourced to vendors. They wake up one day and say, “You know, we need a full-time sales/marketing person.” Then at some point in the future, that sales/marketing person will likely hire an RFP writer and give that RFP writer a certain amount of market commentary to write monthly. So it’s a developmental track.
What the numbers are varies from one hedge fund to another, but it is demand-driven, client-driven. As a hedge fund manager grows and starts to garner a larger and larger percentage of their assets from institutions, the consultants are demanding, “Tell me about your client service personnel.” It’s one of the questions on the RFP. The answer they’re not looking for is, “We have none.”
I would imagine the client is saying, “If you don’t have any client service people, and if you, the PM, are my contact, then who’s trading the markets? Who’s watching the store if you’re trying to do it all?” The principals are busy trading; they’re not going to hand-hold the client. Sure, they’ll go to the annual meetings and annual reviews, but there’s a big difference between that and daily or weekly client contact. It should be, and needs to be, provided by a client service team, so clients aren’t waiting around three or four days for some principal to call them back.
It’s not a very scalable function. You can’t automate it to the point where, if you have twelve large institutions, your client service person can handle 36 large institutions. If you’ve got clients that are very time-consuming, then you need more and more client service people to handle the demand.
Hiring has been good?
Hiring has been very good for marketing people in particular. There’s always a demand for sales types, but we have witnessed a very good year. We’ve been in business 13 years, ’06 and ’07 have been our best years. We’ve just surpassed our ’06 totals for business, and it’s only September. So, demand for marketing, client service, marketing communications professionals, in both the long-only world and the alternative world, has been brisk.
Is there a standard career track in sales?
I don’t know if there’s a standard, but there’s a very popular career track. Someone starting out in client service at a long-only shop, who goes from client service to sales — and maybe even before client service, they’re responding to RFPs, then they get promoted to client service, then they wind up in a sales role. They’re calling on consultants, foundations, endowments, DCs, DBs, Taft-Hartley Plans, &c.
They get their CFA, they get their MBA along the way, and they go to work for a hedge fund, or a hedge fund-of-fund that is pursuing institutional business. They get hired into that role because they’ve been pursuing institutional business in a traditional asset management setting. They get their CAIA, or maybe they get it before they go to work for the hedge fund.
They migrate from the long-only world to the alternative world, just like PMs do. It’s better money, and they need a new challenge. It’s a more complex sale, a more challenging sale, a more lucrative sale. The hedge fund world is growing, and they want to be where the action is.
What are the crucial skills to doing the job?
The desire to have client interface, and the desire to want to communicate about the underlying investment without trading the underlying investment. I’ve worked with CFAs and former PMs who gravitated towards sales, marketing, client service because they were a PM that had some client interface, and they found out that they really liked that part of the job more than they liked the markets, more than they liked trading.
That sounds like an unusual story.
Yeah, it’s more than a handful of folks, but most folks don’t find themselves in the client service, sales, marketing side that way. They started out writing market commentary because they were a journalist major in college, or a marketing major in college. They got a marketing job with a mutual fund company, and just worked themselves up the chain. Whereas, I’ve met a lot of PMs, and I’m sure you have too, that don’t really like that side of the business. They want to follow markets and trade markets, and they don’t want to be bothered with the customer.
If you genuinely like client contact, travel, marketing & sales, the sales process — then it can be very challenging, very lucrative. There are salespeople knocking down seven figures, and having an awfully good time doing it.
How is compensation structured?
I can say with a fair degree of accuracy what a junior RFP writer, a senior RFP writer, a junior client service person, a senior client service person, get. In other words, that train that I just had you on, I can give you some darn good estimates of their base salaries along the way — but bonuses are all over the place.
Most of the sales roles that I have seen, either in hedge funds or hedge fund-of-funds — mid-level sales roles requiring some specific hedge fund experience — are between $125 and $200 per year base salary. Sometimes that person can easily make as much on the bonus side as they can on the base, or they double and quadruple it. Sometimes they’ll be lucky if they match their base. It seems to be all over the map.
I don’t place third party marketer types. What I’ve heard anecdotally is that they get anywhere between 15 and 25 percent of fees. But again the great variable is, for how long do they get them? I’ve heard frequently that they get a declining remuneration in year two, three, and four, and then it plateaus at a number which is lower — considerably — than the first year’s number.
If you reward the sales person — be they inside the firm or outside — highly, and give them, in effect, trail commissions at a very high rate, the belief is — and I suppose the evidence would support it — that if you keep that up for very long, you’ll have yourself a lazy salesperson, very little incentive to go after new money.
Insurance agents collect trail commissions on renewals of policies, so it’s not just a problem that the asset management industry faces. It’s other types of sales organizations. How do you keep the salesperson incentivized, and at the same time treat them fairly, because after all, if the account value grows, that client is paying more in fees in year two, three and four, than initially.
For senior people — marketing directors, sales managers — there can be equity in the fund. I haven’t seen it where it floats down to salespeople or client service people as a whole.
What are the hardest kinds of people to find?
Client service folks with very deep understanding of complex strategies, as opposed to, say, long-short client service types. That’s not to suggest those are a dime a dozen, but that’s a fairly easy strategy to communicate. Client service people with certain types of fixed income backgrounds are very hard to find.
What do you see happen with counteroffers?
We prep our candidates with a “don’t accept a counter-offer” package; we send them several articles from the popular financial press that have been written over the years outlining the downside.
But I remember one bizarre incident where someone was leaving because the boss that hired him had left, and he could not get along with the new boss. He resigned, and was ready to accept the position that we had found for him, and at the last minute, one of the principals of the firm offered this individual the boss’s job, and got rid of the boss rather than the candidate. He got a 30 or 40 percent raise in the process.
On the other side of the coin, I distinctly remember a candidate saying no to a 40 percent increase. She said, “If you think I’m worth that amount of money now, why didn’t you think I was worth half that amount of money a year ago?” And she was madder than hell.
In the recruiting business you’re working with people. That’s a pretty volatile market. Lots of interesting things get done, get said, happen, occur, including the more bizarre.
Reputation and network are essential to sales.
Yes, in sales, your rolodex, your knowledge of clients and consultants and prospects, is everything. And if you go to work for a firm, and it has severe style drift, and you ignore it and keep telling the client that you’ve had a relationship with for 10 years that everything’s fine, when you know damn well it’s not — and something blows up in the middle of the night, the client is going to know that he was hoodwinked by the salesperson. And that’s really going to be a death knell for that salesperson.
But I don’t think it drifts down into client service or marketing roles. They’re support roles, and they don’t have client interface for the most part, so they’re not going to be painted with the same brush as the knowledgeable salesperson: “You should have told me. Why didn’t you tell me?” It’s pretty much limited to the higher profile, higher visibility, higher client-contact roles.
How should people go about staying in touch with your firm?
Visit our website — 99 percent of our jobs are there, and 99 percent of the time, it’s accurate. Get on the recruiter’s list for monthly updates of roles that they’re working on — not at your work address. Drop your recruiter an e-mail, every now and then, with a note that says “Sally got married. She’s an excellent client service professional. They’re moving to Los Angeles; here’s her resume. Maybe you’ve got something for Sally.” Doing your recruiter a favor every now and then will certainly keep you in the forefront of their mind. It’s hard to forget somebody that just sent you a wonderful candidate.