Lessons from the world of whisky

I was lucky enough to be invited to present at a client’s offsite meeting at the Scotch Malt Whisky Society (SMWS) in Edinburgh recently. After an hour’s engaging discussion, I had some time to kill before catching a train home. I was unsure when I would next be in the presence of so many fine whiskies, so it seemed only logical to at least sample one of them. The bar was deserted, which I guess was unsurprising at 3pm on a sunny Thursday afternoon. The barman was, therefore, very willing to chat and explain how the SMWS worked – as well as suggest what I should drink. As I spoke with him, some parallels between the worlds of whisky and fund management became apparent (and not just that whisky can make for a good investment!).

The most interesting area was how the Society’s business model works. The SMWS is a distributor, not a distiller. It does not make any of its own whisky. It effectively white-labels the product, or has it sub-advised, in that it buys a cask of whisky from a distiller but then sells it under the SMWS brand. None of the whiskies mention the underlying brand on their bottles. This disintermediates the producer from the end client much as sub-advisory can in asset management. However, the barman did not describe the purpose of this arrangement as to build a more resilient business model or brand for SMWS, but rather to benefit its customers. This is perhaps where asset managers can learn a few things.

The barman said one of the main advantages of this approach is that customers can focus on what they want from their whisky rather than specific brands. The key is in the naming of the products. The whiskies are first divided into 12 categories with evocative descriptions such as young and spritely, old and dignified, oily and coastal, or spicy and sweet. Customers then choose the ‘outcome’ they are looking for, with the whiskies in each sub-section named according to their flavour, such as Herbal Delights, Caribbean Habanero Hot Sauce and Ginger & Honey Sweet Tea. In the barman’s words: ‘The benefit of not having a brand name on the bottle is that we can describe what it tastes like, not who makes it.’

So what can fund managers take from this? I think it raises (or reiterates) numerous questions that the industry has yet to answer satisfactorily. Is it sufficiently evident just what fund products do for clients? Are their names conducive to this? Do we focus too much on the heritage of companies, the number of investors and geographical reach as selling points rather than the clients’ experience of the service? I think too often we concentrate on the inputs and what matters to us – the portfolio manager, the age of the firm, the number of team members, the track record – and too little emphasis is placed upon the fund’s purpose and the service that clients will receive.

A review of this year’s top-selling funds suggests that some manufacturers have already taken steps to remedy this disconnect. Take Nordea’s Stable Return offering for example, which makes a good stab at describing in its name what it aims to do for clients. That said, other bestsellers have names such as Global Macro Opportunities and Multi-Strategy Target Return – reasonably clear to professional investors but somewhat murkier for your average retail client.

The asset management industry has been focusing on the quality of its marketing for some time, and things have undoubtedly improved, but I would argue that there is further to go to really step into the shoes of investors. Something to consider the next time you’re having a wee dram. Slàinte!