If you’re a Limited Partner looking to actively invest or learn about Emerging Managers, I would love to connect! I am working on putting together a group specifically for LPs investing in Emerging Managers to exchange notes, insights, and opportunities!

Volume #7 TL;DR:

• The next volumes will welcome Jamie Rhode and Owen Willis as guest authors!

• The craft every great investor needs to master is to ask questions that lead to finding value in unexpected/hidden places.

• If the fund strategy does not align with who the Emerging Manager is, and their ability to assess and pick people, the strategy matters very little.

• It is not the initial question that reveals the true alignment between the Emerging Manager and the strategy, but the follow-up questions the LP asks to find further value in the spaces that are further removed from the obvious.

Table of Contents

• Up Next For Embracing Emergence

• What Do You Look For In The People You Invest In?

• Why The Answer Matters

Up Next For Embracing Emergence

What I am pursuing with Embracing Emergence is to host meaningful conversations between Emerging Managers and Limited Partners. I believe the space for these conversations is much needed and I’m excited for Embracing Emergence to play a significant role!

Many of the things I share in this newsletter are reflections from developing the LP strategy for a family office and generally working to be a bridge between the Emerging Manager and LP space.

I believe in building things that are bigger than myself and always enjoy exchanging thoughts with other LPs and Emerging Managers. That being said, I am excited to welcome two guest authors (one LP and one GP) to Embracing Emergence!

The next volume will be published by Jamie Rhode, who is a meaningful partner to the best Emerging Managers.

The following volume will be published by Owen Willis, a highly thoughtful Emerging Manager investing in Health Tech.

Get excited!

What Do You Look For In The People You Invest In?

I believe one of the crafts every great investor needs to master is to ask questions that lead to finding value in unexpected/hidden places.

It does not take a lot of mastery for the LP to learn about the main elements of the Emerging Manager’s fund strategy. Purely understanding the strategy of the Emerging Manager does not represent the pathway to identifying those managers who will produce 5x net returns.

So what does? Understanding if the Emerging Manager is the right person, with the right experience, industry position, and ability to assess people to execute the fund strategy. If the fund strategy does not align with who the Emerging Manager is, and their ability to assess and pick people, the strategy matters very little.

This is why investing in Emerging Managers is incredibly difficult. There are a lot of Managers developing smart strategies, which make sense on paper. But assessing whether the Emerging Manager is the one to execute on the strategy while picking those outlier founders, who will generate exponential returns is a craft of its own.

This is why the Limited Partner needs to hone the craft of asking questions that lead to finding value in unexpected/hidden places. LPs need to explore the opportunity in places that are beyond the obvious. The questions need to reveal the true alignment between the Manager and the strategy.

One of these questions I like to ask is: “What do you look for in the people you invest in?”

Often times you will hear responses listing traits like determination, grit, previous founder experience, or humility.

But once you start asking: “How do you assess humility and how does it manifest itself in the founder during your due diligence process?” the depth of the answers oftentimes starts to significantly decrease.

It is not the initial question that reveals the true alignment between the Emerging Manager and the strategy, but the follow-up questions the LP asks to find further value in the spaces that are further removed from the obvious.

Why The Answer Matters

Why should the answers to the question of “What do you look for in the people you invest in?” matter to Limited Partners?

I strongly believe that LPs underwrite people who underwrite people, especially when investing in Emerging Managers. To a large majority, Emerging Managers oftentimes invest in the early stages of a company’s journey. At that point (and far beyond), the success of a company is heavily dependent on the founders who are building it.

With Venture Capital being an industry driven by the power law, and outlier returns being produced by outlier companies, you have to be able to find and pick outlier people, who are building those companies.

The Limited Partner in return has to understand if the Emerging Manager has the ability to assess if the Manager has the capability to find and pick those founders.

Cultivating the practice of identifying what Emerging Managers look for in the people they invest in, and digging deeper into those answers can provide insights that can help assess whether or not the Emerging Fund has the true potential for 5x net returns.

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