A focus on talented, emerging investment managers is already for many years a big thing in the United States. Various so-called ‘incubator’ strategies and initiatives have become common within the US investment community. For some reason the rest of the world lagged behind.
Parmenion Soparfi and its Group companies believe that it is in the interest of our clients, prospects and financial markets in general that emerging managers across the globe receive our support.
Who is an Emerging Investment Manager?
At Parmenion Group we define Emerging Investment Managers as those meeting at least 4 of the 6 criteria using the following table:
Why Support Emerging Investment Managers?
We believe that there are at least three reasons why Emerging Investment Managers deserve our attention and support:
- Emerging Investment Managers provide diversification and reduce system risks
Economies of scale are important in asset management. This is setting back talented new managers, because investment affiliates of rich banks and insurance companies are already in the lead. Even before they have proven anything in terms of ‘skill’. Consultants and big institutional investors normally require at least a 36 months track record of a manager and an investment strategy before even considering an allocation. Smaller, new managers will therefore often have a hard time pitching good strategies against the mediocre products offered by giants.
The fact that consultants and/or manager selectors will hardly ever be fired for giving mandates to ‘something big and well-known’ doesn’t help either. Over-allocation to giants translates into over-allocation to large caps. The moment that markets move in an adverse direction, too many big parties with too big a stake in big, important firms have to move toward the same exit. This is a system risk that can be reduced when allocating more to smaller, newer managers that have less of a correlation between each other than the giants had in their strategies with better access to capital for small- and mid-sized enterprises as pleasant side effect.
- Emerging Investment Managers speed up the development and growth of talented portfolio managers and analysts with innovative ideas
Very often Emerging Investment Managers are created by bright investment talents that want to roll-out new strategies for which they did not get sufficient space in the bigger institutions that they were employed in; or by smart, quantitative scientists that leave university to apply their knowledge in hands-on investment strategies. In this respect Emerging Investment Managers can be compared to biotech startups and the big fund houses to pharmaceutical companies. Both are needed, but balance is lost with the financial world’s own Big Pharma (read: fund houses) dominating too much.
- A larger allocation to talented Emerging Investment Managers will be good for net investor returns
Reason 2 above is one of the aspects stimulating net investor returns (talents with new, innovative strategies). But a second one is also important: it is a given that entrepreneurs with a mission work harder in the earlier stages of having their dream and then later start to ‘mature’, reducing their net effort, adding ‘followers’ to the team, going into a phase of their life in which they want to reap the fruits of their work instead of continue their focus on new innovation etc. Combined this implies higher net returns when we allocate a larger piece of the action to Emerging Managers. Does this add risk? Yes and no. Yes as in that individual Emerging Managers (small, new kids on the block) might be more risky than the big robust fund houses. However: a neatly diversified mix of individually more risky small managers does not translate into a portfolio that by necessity has higher risk than that of the fund houses. De facto this means that the higher returns are not completely explained by higher risks.
What we can do for Emerging Investment Managers
1 – At the individual level: ‘Best-of-Breed’ Emerging Managers
We are available for financial, content and business development support to the best Emerging Managers.
2 – As a group I: Allocations within ALL Parmenion fund investment strategies
All of our fund investment strategies strive to allocate around 10 percent to best-of-breed Emerging Managers.
3 – As a group II: Creation of a Global Parmenion Emerging Managers Fund (under construction)
We are currently working together with one of our investment management partners on the creation of a focused fund, consisting solely of Emerging Managers.
If you are an Emerging Manager with one or more good strategies and you would like to know more about how you could collaborate with the Parmenion Group and its partners, then please provide us with:
- CV’s of at least two senior-level key staff,
- your corporate powerpoint presentation plus
- one about your best investment strategy.
You can send this to email@example.com and we will get in touch with you.