As established firms grow even larger, emerging managers have a unique opportunity.
Editor
2022 was a big year for emerging managers. We learned that the landscape is ripe for new players to make an impact and find success within their chosen niche.
As established firms grow even larger, emerging managers have a unique opportunity – especially in a challenging macroeconomic climate – to capitalise on their smaller size and strategy specialisation.
This year, we will undoubtedly see some standout trends define the landscape of emerging management.
Here’s our take on the key trends for emerging managers in 2023.
The best way for specialisation continues to be through niche specialisation and marketing
While emerging managers have significant opportunity, the reality is that overall LP sentiment is slow to change. Unfortunately, much of the data we see about emerging firms gets lost in the bigger picture; smaller firms are likely to receive smaller investments, and therefore the overall snapshot of the landscape appears to still hugely favour established firms.
While that may be the case, the scales are indeed tipping. It has become the job of these emerging managers to educate potential LPs on why it’s advantageous to invest in them now for larger returns in the future. The best way to do this continues to be through niche specialisation and marketing. Emerging managers continue to outperform established firms in challenging economic climates, but risk aversion still remains, and it’s important for newer firms to account for this.
Marketing goes hand-in-hand with specialization for emerging firms
On a similar note, marketing goes hand-in-hand with specialization for emerging firms. A unique market focus or approach should be communicated externally in a strategic manner. In slower fundraising markets, we’ll likely see emerging managers have the opportunity to “court” LPs. LPs often have long-established relationships with their teams, who have extensive lists of investment criteria that aren’t likely to budge with just a meeting or two. Marketing, therefore, includes the type of relationship-building that will help emerging managers gain footing for their investments.
Many emerging managers know that a lack of diversity within asset management is a lost opportunity.
Many emerging managers know that a lack of diversity within asset management is a lost opportunity. Emerging managers tend to have more diverse profiles, which has been shown to correlate with higher returns.
LPs have also begun to understand the correlation between diverse emerging funds and high performance. While there is still a long way to go, there is progress being made through conscious action. It is therefore in emerging firms’ best interest to continue making deliberate effort when it comes to minority representation.
ESG – a trend that is not new, but continuing to grow.
In 2023, emerging managers are likely to continue aligning their strategy with best practices in ESG – a trend that is not new, but continuing to grow. ESG represents business sustainability, and emerging firms will place an increased focus on areas of environmental, social and governance. In order to improve their ESG rating capabilities, they may partner with external firms that specialize in ESG-focused asset management.
ESG will likely play a role in how emerging funds choose to operate their back office, which software and tools they use and whether or not they are capable of managing these processes in-house.
What’s clear is that now is the time for LPs to back today’s emerging managers, who are poised to become tomorrow’s leaders.
What are your thoughts on this year’s investment trends? Let us know!
