Tactical Portfolios: Strategies and Tactics for Investing in Hedge Funds and Liquid Alternatives

CHAPTER 2

Emerging Managers

Benedicte Gravrand

Opalesque New Managers

WHAT ARE EMERGING MANAGERS AND WHO INVESTS IN THEM?

According to the Opalesque's New Managers publication and database, emerging managers are any firm that is less than 48 months old with assets under management (AUM) at the time of inception of less than $600 million. Other analysts will provide a broader range than this, and may consider firms up to five years old as emerging managers, but, for the sake of this chapter, the definition outlined above will guide our understanding.

Within the emerging managers space, there is a diversity of funds, strategies, and personalities as broad as the hedge fund industry itself. To help understand how funds are created, we will break out some of the more common types of startup funds and provide examples of these managers. Understanding the common landscape of startup funds can also help investors establish a baseline for the type of emerging manager they might be looking for.

Fully Vested at Inception

In the wake of 2008, the biggest banks lost their proprietary trading desks, which served as an incubator of sorts for emerging managers. As proprietary desks were broken up, a number of proprietary traders decided to set up shops of their own, trading the same or similar strategies they employed while an employee of a large bank. Typically, when these traders spin out, the bank—Goldman Sachs, Credit Suisse, or even other super large hedge funds like Tiger Capital, will ...