Bill Ackman and the merits of niche-building
The viable path to attention that isn't Google or Facebook
As it turns two months old, this newsletter has thus far been faithful to its title: we talked about marketing funds. Today, let's talk about marketing just a touch more generally. After all, a career in marketing will normally span longer than any specific job selling any specific product range.
Any problem marketers have with getting clients' attention first plays out for media businesses. They are the canary in the coalmine, because that's where the link between attention and revenue is most direct.
And this week, a New Yorker article titled Is the Media Prepared for an Extinction-Level Event? paints a grim picture of a dying industry, besieged by disappearing ad revenues in a world where Google generates close to 40% of traffic across digital media.
Journalists themselves have no idea what the future holds for their jobs:
“There is like one place you can work right now with any kind of job security and it is The New York Times. And that’s only because they have a shitload of recipes on a nicely coded little cooking app that you can subscribe to and also because your parents are hooked on Wordle.”
The direct source of vanishing revenues has not been the fall in traffic; it's that the traffic wasn't owned. Advertisers wanted to be where people's attention dwelled - Google and Facebook - not where it was momentarily distracted into. And I hear you saying: Okay, but who cares?
In investment management, as in a lot of B2B businesses, the link between marketing and revenue is more tenuous. Traditional thinking considers marketing secondary to sales. And, so continues traditional thinking, it's relationships that bring in the money.
Yet consider Bill Ackman's announcement this week, which flies in the face of all of that.
Bill Ackman's hedge fund, Pershing Square, has been doing more than fine, posting a 26.7% gain last year. But still, Ackman has a problem: Most of the money he manages is tied to a vehicle that walks and quacks like a hedge fund, but that is also a closed-end fund that is publicly traded.
This vehicle, called Pershing Square Holdings (PSH), is incorporated in Guernsey and has a dual listing in Amsterdam and in London, because of lighter regulation. And PSH trades at a discount. We talked about London-listed companies not liking being thought of as cheap, and it certainly isn't working for Ackman, so what does he do?
He files to launch a new investment fund on the New York Stock Exchange, specifically designed for Main Street investors. Unlike traditional hedge fund fees, the fund will not include a performance fee and Ackman will waive the management fee for the first year. With his brand-name profile and a large retail following (1.2 million followers on X), Ackman aims to create one of the largest listed closed-end funds.
For marketers today, there really are only three options to reach an audience: cater to Google, cater to Facebook, or go directly to users. Digital agencies are all about the first two options.
But Bill Ackman has an asset. The same asset media businesses — and every marketer out there — wants: owned attention. He can go direct.
Niche owners are the ones who win without depending on the aggregator duopoly. According to FinText analysis of traffic and user behaviour when reading financial content, traffic from social to specialist publications is abysmal. They all get most of their traffic direct. What's more, the higher the traffic from search, the higher the bounce rate!
Developing a specific niche and serving quality information is that magical third option.
Mind, not an easy option. Ashmore, an emerging market specialist, shared this week that it experienced net outflows of £3.6bn in the six months to December. This was despite most of its AUM outperforming the benchmarks, to the extent the company still ended up with a 38% increase in year-on-year profit.
Though investors remain underweight in emerging markets, Ashmore is digging its heels. It's in the business of being an emerging markets specialist, and by golly, it will stick to it. That's owning a niche. Investors know Ashmore, because Ashmore is about emerging markets.
Niching down has long been an anathema to fund houses. They want to be a little bit of everything, for everyone, all of the time. Newspapers wanted that too, and look what happened to them.
Treasure Corner: Thinly veiled threats
This week, climate activist investors said ExxonMobil is using 'bullying' tactics and putting their rights 'under attack' through a lawsuit.
All this because ExxonMobil continues to pursue legal action against the investors, even after they withdrew their resolution demanding the company to make greater efforts in cutting greenhouse gas emissions.
From an activist shareholder point of view, the lawsuit is viewed as an attempt to intimidate and silence the shareholders' demand. Exxon, on the other hand, is saying its intent is it wants clarity on "a process that has become ripe for abuse."
When we covered the ShareAction report on shareholder resolutions, we talked about how investment managers would now prefer if there were fewer of them. And we said:
"Look, if your name is ShareAction, ShareActioning is what you do. From your perspective, the more shareholder resolutions the better. But it's a point of view asset managers don't happen to share.
And If your name is BlackRock, it’s also true you have other tools at your disposal. For example, you get to choose the index to track, exclude shares from it, and decide how quickly you respond to changes in companies' ESG ratings."
So this week, a new paper finds that threatening companies they'll be removed from benchmark indices does wonders to their willingness to set climate targets.
In the research, authored by Massachusetts Institute of Technology (MIT) sustainable finance experts Florian Heeb and Julian Kölbel, a randomly chosen group of 300 out of 1,227 international companies received a letter from an index provider, encouraging the firm to commit to setting a target in order to remain included in its climate transition benchmark indices.
Heeb and Kölbel found that 21% of firms that received the letter had committed versus 15.7% in the control group. The researchers say:
“Our results show that firms react to index provider requests, at least if they commit a credible threat of exit...As the threat of exit exists for all index constituents, whether they got the letter or not. The treatment may have increased firms’ awareness of the threat, thereby making them more likely to act."
Investment firms engage with companies on ESG. This research suggests one valuable way to go about this is educate companies on their benchmark exclusion risks.
Also Happening
Japan is on a roll. Net inflows to Japanese open-end funds were more than four times larger in January than the previous month, and the largest recorded since December 2021. One reason is the revamped NISA, or Nippon Individual Savings Account, which spurred retail investors. Another is the Nikkei soaring to heights not seen in 34 years, being helped by ARM and the AI frenzy. Whereas in the UK asset managers are mostly cutting back, MUFG announced it’s expanding vigorously into asset management to make it the fourth pillar of its business.
China not so much. Is China now an ‘alternative’ investment?
An engine of world growth for 20 years, the largest consumer of commodities and the world’s No. 2 economy has somehow slipped into “alternative investment” buckets for many global investors. The article shares some striking data on just how quickly Chinese assets have fallen from grace - both debt and equity. For example, over the past three years, U.S. emerging market funds’ allocation to China as a share of total EM exposure declined to 20.6% from 28.6% on an asset-weighted basis. Even more striking for global emerging market funds: 19.5% vs 27.1% three years ago.
Why Texas Teachers isn't invested in private credit. A great interview with the CIO of America's fifth-largest pension fund. Surveys are great but it’s always good to hear allocators talking directly.