Differentiated Strategy Test
Win allocations by adding something the investor's portfolio does not have
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 94%
The test starts from the premise that institutional investors can select from many intelligent managers, just as a buyer can choose among many serviceable cars. A new manager therefore needs more than strong historical returns: it must show why its strategy improves the allocator's existing portfolio. The capital raiser maps current exposures, identifies an unmet need, and positions the fund as additive through diversification, distinctive sourcing, specialized expertise, or a different return driver. This framing also accounts for the investor's switching cost because replacing an incumbent can require months of diligence for no meaningful improvement. The method directs fundraising toward allocators with a real portfolio gap rather than trying to persuade every possible investor.
Origin
David Conrod presented this positioning model on Masters in Business using the analogy that general partners are selling cars to buyers who can choose any model.
Core principles
- 01Investors can choose among many competent managers
- 02Comparable returns do not justify costly manager replacement
- 03Differentiate through portfolio contribution, not presentation alone
- 04Frame the strategy from the allocator's perspective
How to run it
- 1
Map the investor's garage
Determine which managers, strategies, geographies, sectors, and return drivers already exist in the prospect's portfolio.
Pro tip Use public reports, consultant relationships, and discovery questions to build the map.
Watch out Do not assume that a prestigious investor needs another version of a popular strategy.
- 2
Find an unmet portfolio need
Identify a material gap that the fund can address, such as noncorrelated income, specialized sourcing, or exposure to an overlooked market.
Pro tip Express the gap in the allocator's portfolio language rather than the manager's product language.
Watch out Cosmetic differences do not constitute portfolio differentiation.
- 3
State why the fund is additive
Connect the strategy's distinctive mechanism to a specific diversification, risk, or return benefit for the investor.
Pro tip Contrast the proposed allocation with the prospect's existing exposure.
Watch out Recent performance alone may disappear when the market regime changes.
- 4
Account for switching costs
Acknowledge the diligence time and organizational effort required to add or replace a manager, then demonstrate why the improvement warrants that work.
Pro tip Offer evidence that reduces the investor's diligence burden without pressuring the decision.
Watch out Asking an allocator to replace an incumbent for the same expected return is a weak proposition.
- 5
Prioritize matched prospects
Concentrate outreach on investors for whom the strategy fills a demonstrable gap and tailor the case to each portfolio.
Pro tip Disqualify poor-fit prospects early so the team can spend time on credible opportunities.
Watch out A broad but poorly targeted campaign can exhaust both the manager and the market.
In the wild
A manager raising a music-royalty fund avoids pitching every institution as an alternative credit buyer. It targets investors whose income portfolios rely heavily on corporate credit and explains how royalty cash flows can add a different source of yield without requiring a conventional capital-markets exit.
→ The pitch becomes a portfolio-completion argument rather than another claim of superior returns.
Common mistakes
Selling performance without fit
Strong returns attract attention but do not prove that the fund improves a particular investor's portfolio.
Copying a crowded category
Another conventional fund creates extra diligence without necessarily creating extra value for the allocator.
Targeting every allocator
Broad outreach wastes effort when the strategy does not fill a genuine portfolio need.
Is it for you?
Best for
It is best for emerging managers and capital raisers entering crowded private-market categories.
Not ideal for
It is not ideal for undifferentiated strategies whose only argument is that recent performance exceeds a peer's.
From the transcript
“And these LPs can buy any car they want, you know, and they're probably gonna do fine and uh and so so the question is…”
“Our job is to try to identify that investor that is looking for a differentiated strategy where it's additive to their portfolio”
“I need to have a manager that's got a differentiated strategy that is additive to their portfolio, because that's what a lot of what a…”
From the episode
David Conrod on Successor Funds and Growth Equity (Podcast)
David Conrod