Emerging managers must offer investment opportunities that are differentiated from those of well-established funds. Institutional investors and high-net-worth individuals diligently seek alternative investments that can yield genuinely distinct patterns of returns. Emerging managers must pursue profitable niches, new technologies, and innovative financial arrangements that are not readily available in public markets.
Building a Team
Implementing a vision requires assembling a team of qualified and motivated professionals. The experience and interactions of team members are more important for emerging firms because the funds themselves have much shorter track records.
While a history of working together ensures that daily operations run smoothly, it can also lead to excessive conformity and a failure to identify risks systematically. On the other hand, a hastily assembled team may lack the cohesion and discipline necessary to develop and adhere to a plan.
Informed investors can learn if the right balance exists at a firm by observing the interactions of the investment team. A successful team must give its members sufficient independence to provide critical feedback during the decision-making process while remaining united enough to follow up decisions with concrete actions.
Transparency is the Key to Trust
Transparent goals and operations are essential at an emerging firm to attract capital and maintain strong relationships with investors. Most importantly, managers should always be clear about the aims, risks, and methods of their funds.
Emerging managers must always fully disclose any potential conflicts of interest in a timely fashion. They should also seek investor approval before making any significant changes in how a fund operates.
Setting Sensible Fees and Aligning Incentives
Transparency is essential when setting fees. All fees and other expenses must be clearly stated from the outset. Charges should always be justified by the risks and costs incurred by management. While fees must remain in line with industry standards to ensure profitability, emerging managers may temporarily offer lower fees to attract initial investors for first-time funds.
It is also typically good practice to place fees on capital invested rather than transactions. However, charges for transactions can make sense if they align with incentives.
Establishing the proper incentives ensures that team members work toward achieving the emerging manager's stated goals and avoid conflicts of interest. We typically expect managers to commit more than 10% of the total capital in the seed capital transaction.
Generally, the back-end model of manager compensation offers better incentives to maintain performance. On the other hand, the deal-by-deal model can sometimes provide more motivation in areas with less consistent payout, such as litigation finance. Ashton Global strives to ensure that the incentives for emerging managers favor the continued growth of capital over the long term.
Manager Development and Capital Introductions
Having a unique edge and pipeline of interesting investment ideas is crucial for attracting sophisticated investors. Developing and articulating a growth plan is also essential for scaling emerging fund managers and retaining long-term investors.
Our platform helps emerging and diverse managers scale quickly with institutional capital. An extensive network of distribution channels and capital introduction opportunities provide sustainable growth for emerging asset managers.
Once we identify potential managers who offer unique strategies, we develop these managers through co-investments or smaller mandates to validate the investment thesis and help them build a track record.
