Volume #11 TL;DR:

• The best Limited Partners are marked by a unique craft and ability to identify the quality of a Manager quicker than anybody else.

• Like with any wine tasting, if you want to develop your taste as a Limited Partner, you should taste the wines next to each other.

• Any serious Limited Partner should cover a spectrum of Emerging Managers to talk with to ensure they are getting a full picture of the type and quality of Emerging Managers that are available.

• Accessing Emerging Managers won’t be your problem, but how to underwrite them is a challenge.

Table of Contents

• Limited Partner Spotlight

• Developing Taste

• How To Taste

• My Hands-On Advice

Limited Partner Spotlight

I am excited to give Limited Partners who are actively investing in Emerging Managers work a spotlight in this community (this is not sponsored). I believe this will be equally valuable to LPs and EMs.

Pattern Ventures is a specialist Fund of Funds with an exclusive focus on Venture Funds with $5-$50M in size.

I met Nico and Kyle ~18 months ago and can speak very highly of the work they are doing, both for Limited Partners and Emerging Managers.

I specifically value how they embrace both the importance of taking a data-driven approach and optimizing for the returns of their investors, while simultaneously empowering superior outcomes for their Fund Managers through their experiences as Fund of Fund and direct investors and by facilitating impactful connectivity to their network of Limited Partners.

Developing Taste

As I am having more and more conversations with investors who are interested in investing in Emerging Managers and want to learn about how to approach the asset class, my advice continues to boil down to one thing: develop taste.

Most approaches of various Limited Partners and investors who are looking to develop a strategy around Emerging Managers ultimately boil down to identifying the most efficient pathways to learnings and the best opportunities.

It is only natural that this is the case. Teams are often small, other strategies need to be pursued, portfolios supported, and booking one call after another via Calendly often is a waste of time for Limited Partners.

However, I would make the case that the best Limited Partners are marked by a unique craft and ability to identify the quality of a Manager quicker than anybody else.

Peter Lacaillade, Manager at SCS Financial Services and early backer of Founders Fund, a16z, Thive, Greenoaks, 20VC, etc. Listen at 13:38min in the video below and you’ll see what I’m talking about:

I call this ability “taste” because it is different for each individual who is “tasting”, each Manager that is “tasted”, and a craft that’s needs to be refined over a longer period amount of time.

What I am trying to say is that the pathway to learning how to underwrite Emerging Managers is not necessarily about efficiency, but also about developing the taste to harness the craft of identifying the best Managers quicker than anybody else. This requires a lot of work, calls, and reflection.

How To Taste

Like with any wine tasting, if you want to develop your taste as a Limited Partner, you should taste the wines next to each other.

When I initially helped develop the LP strategy for a family office, it did not even feel like a wine tasting. We didn’t even know what wine was. We were tasting water, coffee, wine, sodas, and margaritas all next to each other. We had to cover all the drinks first before we even knew what wine was.

Any serious Limited Partner should cover a spectrum of Emerging Managers to talk with to ensure they are getting a full picture of the type and quality of Emerging Managers that are available.

Once you have identified the wine, the best Emerging Managers, then you can start tasting the wine next to each other. By now, you will also have developed the right access to deal flow that will enable you to get to these opportunities with the efficiency that is required. This stage is appropriate to make efficiency a priority again.

My Hands-On Advice

If you are a Limited Partner at the very beginning of the Emerging Manager journey, here is my unsolicited advice: do not take shortcuts in honing the craft of identifying the best Managers.

Accessing Emerging Managers won’t be your problem, but how to underwrite them is a challenge. The only way to master this challenge is by developing taste. The only way to develop this taste is by genuine curiosity to explore the entire landscape that is unfolding in front of you.

And every now and then, on a rare occasion, you come across a very, very, very special Emerging Manager, and the feeling of sensing the quality within seconds is priceless. It’s like tasting some french soil in your wine - it’s special.