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Volume #3 TL;DR:

• I assess four elements of any emerging fund: the manager(s), the strategy, the track record, and the fund operations.

• Embracing Emergence takes the approach that the whole is often greater than the sum of its parts. I believe that when it comes to assessing the manager(s) and the strategy, their humanness + profession need to converge with their strategy in such a way that creates a whole that is larger than the mere sum of the parts.

• Proximity describes the position and ability of an emerging manager to assess founders in such a way that they can discern between what founders tell other people who they are, who founders tell themselves to be, and who they actually are.

• The Art of Proximity is important because Emerging Managers underwrite people.

• The Art of Proximity is important because LPs underwrite people who underwrite people.

Embracing Emergence Spotlight

Grace and Luke from the Vanderbilt University Office of Investments have been sharing their investment approach with me and are also building a fantastic community I want to mention especially to LPs:

"Emerging Endowment and Foundation Investors (EEFI) is a community built to foster increased engagement and connectivity across the junior-level LP ecosystem. To date, we have onboarded nearly 180 analysts and associates from top U.S.-based endowments, foundations, and family offices. By leveraging a Slack workspace and hosting in-person events, our goal is to build a network that will be additive to our members’ respective institutions and to their professional evolution at a foundational point in their careers."

If you would like an intro to Grace or Luke, you can email me here or connect with them on LinkedIn (Grace / Luke).

Table of Contents

• What I Look For in Emerging Managers

• The Art of Proximity

• What Proximity Looks Like - Claude Monet

• Why Proximity Is Important?

• The Artist Cannot Become the Art Itself

What I Look For in Emerging Managers

1. The Manager(s)

2. The Strategy

3. The Track Record

4. Fund Operations

The Manager(s):

I generally split this element of my underwriting into 2 parts: Humanness and Profession. When conducting due diligence and building relationships with emerging managers, I spend a significant amount of time assessing the part I call “Humanness” (their character, values, work ethic, intellect, level of thoughtfulness, etc.). I also intensively assess the part I call “Profession”, meaning their professional experience, the level of their expertise, education, etc.

With Embracing Emergence I take the approach that the whole is often greater than the sum of its parts (which is the concept of emergence). Hence I believe that when it comes to assessing the manager(s) and the strategy, their humanness + profession need to converge with their strategy in such a way that creates a whole that is larger than the mere sum of the parts.

Meaning: 1 + 1 = 3

So, If the Humanness + Profession exponentially multiply the strategy and vice versa, the Emerging Manager has a unique potential to generate outlier returns.

Now, you may say that the math does not make sense. One plus one does not equal three. Correct, the sheer impossibility of this equation shows:

1. How difficult it is for Emerging Managers to generate top decile returns.

2. How unique of a person and strategy Emerging Managers have to bring with them.

3. How difficult it is for LPs to pick.

I have met and know Emerging Managers whose “Humanness” and “Profession” and “Strategy” amply each other in such a way that they have an incredibly unique edge. This is the initial bar I have. Assessing this is a craft and an art that takes a long time to hone. With Embracing Emergence I aim to continue to hone that craft.

The Art of Proximity

The art of proximity is an aspect I assess when I look at how the Humanness + Profession aligns with the manager’s strategy.

Here is how I define proximity:

Proximity is an art because it requires a balance of constant discipline and curiosity. It takes a lot of work to practice such proximity with founders, and yet it needs to be a passion and something that needs to be a natural expression of the Emerging Manager.

What Proximity Looks Like - Claude Monet

Claude Monet was a key figure in who led the way to twentieth-century modernism by developing a unique style that strove to capture the very act of perceiving nature on a canvas. He transformed French painting.

But how can Claude Monet teach LPs what proximity can look like in Emerging Managers? And how can Emerging Managers learn the art of proximity from him?

For all of the 1910s and 1920s (nearly two decades), Monet almost exclusively focused on the water lily pond, which he is now famously known for. Between 1897 and 1962, Claude Monet painted roughly 250 waterscapes of his favorite subject toward the end of his life: water lilies.

The practice of proximity and familiarity Monet cultivated over decades with his water lilies is the practice Emerging Managers need to cultivate with founders. I imagine Monet sitting on his bench in his garden looking at his pond filled with water lilies and observing these flowers day by day. For hours, days, weeks, years, yes even decades. Often times not even painting, just simply observing. Monet cultivated a proximity and familiarity with these lilies that is unlike any many of us know today.

Only when we spend time in repetition while being equally curious and creative, only then do we start recognizing important details and nuances we otherwise would be missing.

The Emerging Managers who have this practice of constantly observing people, having spent so much time with founders that they can identify details and nuances an unpracticed eye would miss, these Emerging Managers possess the art of proximity.

Why Proximity Is Important?

The art of proximity in Emerging Managers is important for several reasons. I will list two here:

1. Emerging Managers typically invest at the early stage where they are primarily underwriting people.

2. Every person deals with a false self - there are plenty of examples in which founders have told other people who they are, but weren’t.

1. When you invest in Emerging Managers, you typically invest in a small- to medium-sized fund investing at the early stages. At these stages of a company, investors have to underwrite people and their ability to navigate the startup’s journey in such a way that leads to venture-type success. This type of success is insanely hard to achieve and only a few will ever do it. So, with a lot of founders starting companies and only a limited amount ever making it to a venture-type exit, the Emerging Manager needs to sort through a variety of people and pick who they believe has what it takes.

2. We all deal with a false self. The false self is who we tell other people we are, but are not. It’s who we tell ourselves we are, but are not. It’s the parts of us we portray, but are not reality. This is not rare, it’s simply human.

   The more proximity we have with people, the more we start to see past the false self. The more reps we get with seeing past it, the better we get at it and the more we hone the craft. If you invest by underwriting people, having honed this craft is not an option, it is necessary!

The Artist Cannot Become the Art Itself

The danger that can come with Emerging Managers practicing proximity is a closeness to founders that can cloud sound judgment. The artist needs to preserve the ability to walk away from his art when they have to.

The artist should not become the art itself. Hence, Emerging Managers need to constantly self-check whether the proximity to certain founders is helpful or potentially a pathway that could lead to an investment that does not check all the boxes.

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