A group of emerging managers that have enjoyed some success sparked some interesting debate at GAIM Ops Cayman as those yet to emerge looked to gain some insight into best practice.
In order to build something with scale you need to have a good understanding of what is important to you and one manager on the panel said it is usually possible to get discounted rates on administration, so that is something to look for. Time constraints are often a concern so you also want to be sure that your service providers can get you there in the time frame you want. “Keep in mind that you probably don’t know what you will need six months down the line and revenue is limited at this stage so everyone is going to have to pitch in,” the manager said. “Transparency is paramount so the book needs to be as open as possible and communication is important so everyone is on the same page.”
Being able to manage sell side and prime broker relationships can involve a lot of work, it was added, so the team needs to be able to handle that, because managing a large beauty pageant can be complicated.
There is also the situation where a manager leaves a successful fund to strike out on their own and the adjustment required going from a large firm to a smaller size. “People with a corporate culture need to be flexible and have the entrepreneurial spirit,” commented one panelist. “Portfolio managers leaving larger funds need to understand that whatever they want to add will cost money.” This usually ends up with people wearing a number of hats as the firm gradually builds in size, for example the portfolio manager might also be the firm’s IT specialist. Service providers and prime brokers are often helpful at making introductions, it was stated, so it’s worth leveraging from your prime broker teams if you have a position to fill.
Investors are realistic in this business and appreciate it’s all about partnership. Meetings need to be quite fluid, managers said and as the organization matures and grows you need a new set of goals to improve and build out your infrastructure.
When asked what they would do differently if launching again, one of the successful emerging managers said he had been overconsumed by prime broker resources which involved lots of documentation and was hard to narrow down. “People spent a lot of time working on this without getting anything at the end of the day, so if I did it again I would be more transparent about the process,” he said.
The question was also asked about the importance of the CCO function at a start-up, where obviously resources are finite. The view was that the CCO is of growing importance as it is useful to have people concentrating on something that is not the core revenue business. “The portfolio manager has a lot of work to do in this environment so it is critical to make things run as smoothly as possible and take the pressure off their shoulders,” commented an emerging manager on the panel.