Emerging and Diverse Manager programs are critical for institutional investors to gain exposure to up-and-coming firms; ensuring they can matriculate beyond these mandates, however, requires a more strategic and flexible approach.
The case for emerging and diverse managers was opened and shut a long time ago. In private equity, if you ask most limited partners (LPs) about their favorite Roman Numerals, they’ll cite “II and III,” a manager’s second or third fund, when emerging managers are experienced enough to find a rhythm and still hungry to make a name for themselves. And across the broader asset management landscape, one of the biggest challenges for institutional investors is to identify managers who don’t fall into the groupthink that comes at the expense of alpha and amplifies risk when cycles turn.
This was a recurring topic that came up during Meketa’s most recent Emerging & Diverse Manager Research Days roundtable discussions, which attracted more than 135 asset managers across nearly 90 different firms this past October. During the LP panels — with senior representatives from CalSTRS, Illinois SURS, and the State of Connecticut — each participant highlighted how their respective institutions have adapted as their programs have grown and evolved. Two of the overriding takeaways were the importance of flexibility in constructing the program and the value of a regular dialogue to ensure that when opportunities arise, the usual suspects in a given category will be joined by new faces and fresh perspectives of those ready to transition from emerging and diverse manager programs, often coordinated through managers-of-managers, to the broader portfolio through direct investments.