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Matthias Knab, Opalesque for New Managers: The interactive Investor Workshop "Generating Alpha with Emerging Managers - Opportunities and Approaches" on May 2nd has been designed to prep Agecroft Partner's 5th GAINING THE EDGE (June 17-28) which will be the largest virtual cap intro event for the remainder of the year. The event is free for investors, and there are exclusive registration benefits for managers (a $3,478 goodie bag), click here for more.
The webinar featured a panel of hedge fund and investment veterans, including Caroline Gillespie Greer, Managing Director Commonfund, Lionel Erdely, Co-CEO and CIO Investcorp - Tages, Adam Choppin, Assistant Portfolio Manager, Xponance and Jamil Batcha, Investment Director at single family office Waycrosse who discussed the topic of emerging fund managers. The panelists defined an emerging manager as a fund manager with a smaller asset size and less than three years of track record. They also noted that the definition can vary depending on the asset class and the specific investor.
The panelists discussed the advantages and risks of investing in emerging managers. The advantages include access to innovative strategies that may yield superior alpha, transparency and direct access to decision-makers, fee discounts and favorable terms such as appropriate hurdles, and the potential for higher returns due to the emerging manager premium.
Their smaller size allows them to be more agile and identify opportunities that larger funds may overlook. However, the risks include operational risks, the possibility of redemptions, and the potential for the manager to take on too much risk in order to avoid losing their business. Emerging managers can display specific operational risks due to a lack of robust infrastructure. Redemptions may impact smaller managers more significantly.
Technology and qualitative due diligence
The panelists further discussed the critical due diligence factors when evaluating emerging managers. These include assessing the manager's alignment with the investor's goals, understanding the manager's investment process and strategy, evaluating the manager's track record and performance, and conducting thorough operational due diligence which also assesses the team's alignment and stability, often involving in-depth background checks and personal references.
In terms of finding promising emerging managers, the panelists suggested looking for managers with a clear investment thesis, a differentiated strategy, and a strong track record. They also recommended networking and attending industry events as a way to identify and connect with emerging managers, such as direct engagement events like "Gaining the Edge" and personal outreach. Commonfund has been utilizing a diverse manager portal to specifically target managers from underrepresented backgrounds.
The use of technology helps streamline quantitative analysis and risk assessment, but it does not replace the need for qualitative evaluation. Investors are encouraged to explore revenue-sharing models that better align the interests of investors and managers, or to add value by offering referrals, providing strategic business advice, and serving as a reference to other investors. Emerging managers should maintain transparency through a clear organizational plan that can accommodate future growth.
Overall, the panel encouraged both investors and emerging managers to remain transparent and open in their communication, emphasizing the importance of mutual benefit in investment partnerships. Emerging managers should focus on cultivating relationships, leveraging events, and providing clear, concise messaging to attract potential investors.
The investors emphasized the importance of conducting thorough due diligence when evaluating emerging managers, but also noted the potential for higher returns and the benefits of access to decision makers and transparency. They encouraged investors to consider emerging managers as part of a diversified investment portfolio.
The user-friendly video REPLAY of this interactive Investor Workshop is now available here:
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