Emerging Managers : ELIZABETH FLISSER, CAPITAL Z ASSET MANAGEMENT

In the hedge fund industry, the so-called emerging manager is both the ‘holy grail’ and the ‘problem child’. Both anecdotally and in research conducted over the years, emerging managers have been shown to offer higher returns than more established funds. They are entrepreneurial and agile, often able to capitalise on market opportunities the bigger players cannot. Yet the risks of investing in early stage hedge funds, from size and liquidity to transparency and headline risk, have largely left institutional investors wondering how – or even if – it is possible to include emerging managers in a fund of funds portfolio. Although the challenges are many, there is no doubt a place for emerging managers in hedge fund of fund portfolios, especially in the current market environment.

What defines an emerging manager? A key consideration for investors is the very definition of an emerging manager. Many define emerging managers simply as having less than a two year track record. Yet the small group of highest profile hedge fund launches – those launching with $500 million or more – quickly attract institutional assets prior to their first anniversary and are hardly regarded as ‘emerging’ by the industry. It is perhaps more useful to consider the emerging manager as one who is both relatively new to the market but has yet to reach critical mass in terms of assets. The best of these managers are experienced portfolio managers, fiercely entrepreneurial and begin building a solid track record right out of the gate. These are the emerging managers that high net worth individuals, family offices and private companies have targeted for several years, while their institutional brethren have remained focused on the larger managers.

The article on : http://www.thehedgefundjournal.com/managerwrites/index.php?articleid=71065389