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So you want to be an emerging manager? (Warning this is long)
Why should you care about what I have to say? I worked at a h/f that specializes in developing portfolio managers. I was there as the fund 10x and started 2 new strategies.
4 and soon to be 5 of my former analysts have their own funds. I have worked with a few emerging managers not from my old firm one of whom has improved performance materially and tripled aum since we started working together and one who has risen to over a bn of aum.
I’ve also met with a number of emerging managers and chose not to help them. Why?
There are learnable and unlearnabke skills. That’s true of all pursuits. Investing or otherwise. You may be a great business analyst better suited for banking or consulting.
In practice, there are four buckets of skill you must master if you want to manage a team or a fund. You must be a great stock picker, portfolio manager, manager of internal relationships, and a cultivator of external ones.
Being a great stock picker is necessary but not sufficient for being a great portfolio or fund manager.
But if you are a great stock picker and have some traits of a PM you can learn the other skills.
Necessary but not sufficient for being a great stock picker are the ability to synthesize, adapt, and suffer
Necessary but not sufficient for being a great PM are the ability to decide and convert ideas into profits
If you want to be an emerging manager rather than lazily lamenting the fact that analysts and PMs that spin out of big funds have an easier time, ask yourself why?
The answer depends on what fund we are talking about but if the new manager was at the old firm long enough, there is a survivorship bias which assumes you must be a good stock picker or you would have been blown out long ago.
For some, being a great stock picker trained at a big fund is enough.But not everyone.There was a wave of fund launches in the 2010-2015 time frame where experienced analysts with zero PM experience flopped because they didn’t know how to manage a portfolio let alone a business
New funds from managers coming out of Viking, P72, Citadel and a few others have a greater halo than other funds now because those funds not only stress great stock picking but also teach portfolio management and allow analysts to grow into PMs under their umbrella.
So if you come from any of those funds today you have two boxes checked. Great stocker and experienced PM. To be clear you wouldn’t have been promoted to PM at any of those places if you weren’t an elite stock picker.
So if you bet on someone like that you are betting on fewer unknown variables. But here is where it gets tricky.
You have five hats to wear flexing four skills - analyst, PM, boss, partner, client
Analyst - are you still going to pick all the ideas? How do you manage your time? Do you need help? How do you feel about generating all the ideas?
PM - how do you know how to be a PM? Do you have a plan? A style? Framework? For managing position sizes? Risk? Gross? Net? Drawdowns? Volatility?
Do you have a system for knowing when you need to wear your analyst hat and when to wear your PM hat?
Boss - Have you ever hired someone? Can you train? Mentor? What can you afford? How many relationships can you manage? How and how quickly do you address hiring mistakes?
Partner - Can you persuade? Tell a story? Paint a picture? Be a poet? Can you be trusted? How do you close? How do you maintain relationships? Does the strategy scale in a way that aligns with the potential partner? Does your view align with what you are actually doing?
Client - what can you afford to pay for to improve your tool kit? What can you outsource? What is appropriate to outsource? How do you manage vendor and broker relationships?
My brother in law died of brain cancer 15 years ago. During his battle he would say “the beauty is in the struggle not the outcome”. It’s such a lesson for so many aspects of life.
Becoming a manager will be a beautiful struggle but you have to be honest about what lies ahead and tackle it thoughtfully. Hating the struggle, will not attract partners. Embrace the suck. Trust me, if you don’t enjoy the journey, the destination won’t be nearly as fun.
