Tim Bourgaize Murray: Hot Products Prove 'To Be Early Is to Be On Time'

Years ago I had a high school teacher, as many of us probably have, who would constantly rail on us, always reminding that “to be on time is to be late; to be early is to be on time.”

Why this was necessary, I don’t know—high school students are always prompt and on their best behavior, right? I’m sure I was. I’m less sure whether I’ve retained that sage wisdom and practice in my adult life as much as I should, but I can still hear those words rattling around in my head.

And rightly so. The adage could easily apply to more complicated matters of business as well. We regularly hear about the economic concept of “first-mover advantage” in financial services, and in financial technology, especially: Show up to market before the competition and reap the benefits.

But, somewhat to my surprise, I’ve often heard in the past three years that the opposite usually ends up being the technology strategy for firms: slow everything down wherever you can, even to a crawl if you need to.

Take regulation for example: why invest significant time and resources into something that always seems to change seven or eight times before it becomes law? Waiting makes a ton of sense in this case, and it seems like every conference we go to includes at least one C-level exec expressing (or, more accurately, loathing) this same sentiment coming from the business side, too.

Not every first-mover story is a success and when there is no easy, off-the-shelf option to start with, getting the technology right for a new product can be tricky. That’s especially true when you’re crossing over to a new investor segment like Larch Lane did, or swimming against the tide with what you’re selling, like Tobam was at first.

As Colin Powell famously said, once you break it, you own it and you fix it. And things usually get worse when the breaking is done in haste.

Early Risers

But sometimes, being early to the show pays huge dividends. This month’s buy-side coverage featured two terrific boutique examples of how and why. First let’s touch on liquid alternatives. Larch Lane Advisors, a private investor, partnered with Rothschild on a new ’40 Act mutual fund offering last year, just before the buy side became awash with investor demand for hedge fund risk in retail packaging. The company—with a long history and impeccable credentials, but still relatively small—knew building the necessary monitoring and reporting functions for a ’40 Act fund would be a challenge, so it partnered with Imagine Software to make that happen.

Second, we have equity smart beta and Paris-based Tobam, featured in this month’s profile of Yves Choueifaty.

As the CEO put it bluntly to me, being “anti-benchmark” before 2008 would have gotten you laughed out of a room. Still, he and his team were able to navigate choppy waters as they decoupled from Lehman Brothers, and today we see new indexes and other products from some of the largest buy-side firms on the Street all loudly trumpeting the smart beta gospel.

Tobam has grown from $2.5 billion to more than $9 billion under management in a couple of years as a result, but Choueifaty was candid about the keystone role Tobam’s internally-built portfolio management system, called Pilot, has played in convincing investors—early on and still today—that their product makes sense. Without that foresight, the firm would still be catching up with everyone else, and battling the scale that a BlackRock can leverage without a head start is almost certainly a losing proposition.

The Other Half

Of course, not every first-mover story is a success and when there is no easy, off-the-shelf option to start with, getting the technology right for a new product can be tricky. That’s especially true when you’re crossing over to a new investor segment like Larch Lane did, or swimming against the tide with what you’re selling, like Tobam was at first.

Many false starts have probably resulted, and I’m sure that this has led institutions both big and small to regularly brandish some product development projects to a kind of purgatory—if not a quick death once the money runs out.

That’s especially sad when you see a few new investment ideas like liquid alts and smart beta blossoming. With so many of investors’ needs still unmet by market offerings, who knows what else could be out there?

Perhaps being early is only half the battle; the other half is showing up with a solid plan.