Highlights from Weaver's Exclusive Emerging Manager Circle

We appreciate when clients ask to meet other clients. That was the impetus for developing this virtual roundtable exclusively for our emerging manager fund clients. In this private forum clients had the opportunity to connect, network and openly discuss relevant industry issues, opportunities and challenges with their peers from across the country.

TOPICS OF INTEREST: Fundraising • Deal Flow • Investor Relations • Launching a Fund • Institutionalizing Operations • Regulatory Compliance • Operational Due Diligence • Human Capital/Talent

Based on topics of interest, we customized breakout groups to discuss fundraising, deal flow, investor relations, launching a fund, institutionalizing operations, regulatory compliance, operational due diligence, and human capital/talent. Thanks to our clients who participated in this event, we have the following key takeaways from the breakout sessions to share:

Fundraising

A primary challenge for emerging managers is getting traction with “institutional” limited partners (LPs). Typically, a capital raise under $100M is generally considered a “friends and family raise” because of institutional investors’ unwillingness to represent more than 10% of a fund and the rule of thumb $10 million minimum contribution. You may find more success focusing on a long-term approach to meeting with institutional LPs. Even if they are unable or unwilling to invest initially, institutional LPs may spark interest a few years down the road.

Set smart and appropriate fundraising targets, and highlight what makes you unique. Don’t do something for the sake of doing it (i.e., focusing on a growth target exclusively to attract institutional money), especially if it could potentially result in deviating from what has made you and your fund successful to this point.

Ways to differentiate yourself and your fund

While meetings with prospects will cover 1) team, 2) track record and 3) strategy, emerging managers should start by promoting their team and track record as primary selling points. When you skip straight to the strategy/sector, you run the risk of selling a prospective LP on the sector and having them reach out elsewhere to get exposure to it. During the pitch, explain what makes your team unique and demonstrate team cohesiveness. Prospective investors will evaluate your team dynamic to understand how you handle challenges, so remember to share examples of how you work together as a team. Keep in mind that LPs will observe your body language and how you respond to each other in order to gauge mutual respect and agreement on key issues.

Even though you might look for innovative and creative ways to stand out, be careful about presenting information in a non-standard or “too cute” way. When there is a generally accepted manner of doing something, LPs might perceive an unexpected change to the standard as confusing or trying to hide something, even if the intent is simply to give the reviewer a break from the ordinary or mundane.

If you suspect that a prospective investor might pause over something in your presentation, it’s often better to address that concern upfront. When you address the issue directly, you demonstrate transparency and hopefully guide the LP past the concern. In the same vein, if you know what the LP is most interested in, make sure you highlight anything in your presentation that touches on those interests.

Don’t be bashful with your questions to prospective LPs. Asking good questions as an emerging manager is a way to set yourself apart from the crowd.

Building the right team

Proper vetting of potential hires is key. Several fund clients recommend utilizing contract-based work arrangements (or temp-to perm arrangements) as a trial period to ensure potential new hires are a proper fit. Operational proficiency is important, but finding a culture fit is ultimately more important since working together is a long-term commitment. By clearly defining roles and responsibilities that make the most of your people’s strengths, you create an environment of accountability and maximize the potential of your people.

Your trusted advisors, including your service providers and advisory council, can be vital in finding proper candidates to fill out your team. When selecting service providers, look for those that are willing to scale with you and have good working relationships with your other service providers. Try to automate as many manual processes as you can and utilize software within the fund space that can automate investment and investor onboarding.

Institutionalizing operations

There is a major jump in moving from friends and family investors to institutional investors, and it’s critical to ensure your processes, people, and compliance are shored up before that transition can successfully occur. For example, in addition to LP concerns, regulators increased their focus on cybersecurity in recent years, so managers see the immediate value and benefits of investing in premium IT consultants, insurance, cybersecurity programs and other IT systems.

HELPFUL TIP: Take note of unexpected questions asked as part of due diligence questionnaires. Anything out of the ordinary most likely stems from something that has occurred in the past with the intent of being avoided in the future.

Resources available to emerging managers

Events specifically centered around connecting managers with allocators as well as platforms, such as Preqin and Pitchbook, have a great deal of information on LPs. These resources are not inexpensive, and the return on investment from using them is ultimately up to the manager. You can also ask your service providers if they have any discount codes for upcoming events. For example, Weaver has a 20% client discount code for iConnections along with client passes for events such as DealMakers, AltsTX and AltsLA.

Contact your Weaver relationship manager or for access to these client benefits or additional information to our next Emerging Manager Circle event.

Authored by Jason Massey and Jeremy Winkler.

© 2021