Emerging managers have strong chances of generating outperformance because:

• They are more nimble and opportunistic than larger long-established investment management firms and generally have the ability to move in and out of positions swiftly without moving the market;
• They have a much wider investment universe from which to select securities because they can invest in smaller shares that large managers cannot invest in without owning a significant stake of the business;
• Emerging managers’ interests are more aligned with those of their investors;
• They are open to innovation, are efficient users of technology, and are motivated by ownership incentives;
• They are driven by a genuine desire to generate consistent superior investment returns;
• Their marketing budgets are thin and they rely on performance to stand out in a crowded market;
• For them, investment performance takes precedence over asset-gathering.

We are aware of the potential for emerging managers to be exposed to above average business risks and we pay particular attention to our manager selection and monitoring processes. To that end, people and organisational strengths are critical scoring factors in our selection criteria.

Our experience is that top-performing portfolio managers at larger firms frequently leave to form their own investment firms – providing a steady stream of experienced new talent. We seek to track and blend this talent in a risk-controlled multi-manager environment.

While growth and size provide economies of scale, continued growth brings with it the potential of diminishing returns. Once this point is reached, large investment firms’ competitive edge and client focus are lost due to organisational bureaucracy.

We do not invest in start-ups. We only invest with emerging managers that have established a good track record over a number of years. We do not invest in managers who do not have adequate financial and infrastructural resources to manage assets.

We believe that our manager-of-emerging-managers solution provides a distinct opportunity for diversification to investors. Our investment portfolios are dynamic composites of high conviction specialist portfolios of emerging managers with complementary investment styles.

Our analysts closely monitor managers to identify problems early on. We keep a look-out for rapid organisational growth without corresponding infrastructural developments. Furthermore, we look out for loss of key personnel or sudden changes in organisational structure, as well as unexplained shifts in portfolio composition not explained by the stated investment strategy.