Consortium 2015 | enVision + inVest Highlights
With more than 300 in attendance-including small and diverse managers, institutional investors, consultants and other industry influencers across the asset classes – the focus of our 12th annual conference-enVision + inVest-was echoed in different panel discussions and one-on-one networking. We’re pleased to provide you with a recap of some of the key take-a-ways and hope the gathering sparked new thinking and new relationships for those who attended.
We’d like to hear about your experiences at Consortium 2015. If you have not already, please click the link and take a few minutes to complete our online survey (GPs + General Attendee Survey /Institutional Investor Survey). Every comment and suggestion is reviewed by the RG + Associates team and will help play a part in our 2016 planning process.
Consortium 2015 | Manager Audience Profile
The Consortium audience included close to 140 emerging or diverse managers, including:
- 65 African American-owned firms
- 45 Women-owned firms
- 15 Asian-owned firms
- 12 Latino/Latina-owned firms
Of the 140 managers, 50% have raised or are raising a first time fund.
Consortium 2015 | Institutional Investor Audience Profile
Our goal each year is attract different types of investors. This year Consortium drew in over 17 family office investors.
Emerging Manager Bootcamp
Managers gathered for advice and insights on how to build their funds. “There’s a new normal emerging in the PE space. As you go out and raise capital, you need to be tuned to these changes and what’s specifically important to the specific LP you’re meeting with.” — Klaas P. Baks, PhD, Executive Director – Emory Center for Alternative Investments
Here’s a recap of some of the bootcamp key take-a-ways and discussion themes:
LP/GP Alignment. Manager interests are not always aligned with investor priorities. Management fees, carried interest – all those channels create conflicts of interest. Management fees, for example, are paid regardless of performance, essentially creating a profit center for a fund. Raise additional capital – get additional fees. Carry can also create misalignment if you’re underwater. Fee income has been a hot discussion in past 2-3 years, including a recent SEC issue.
“One effective strategy has been to get an anchor investor. Focus on them with special attention, then leverage that relationship to grow investor base (and assets) with additional separately managed accounts.” — Dr. David Panton, Founder & Chairman – Panton Capital Holdings, LLC
Co-Investments On the Rise. There’s a growing interest among LPs to co-invest with GPs in specific deals, including PE and real estate. Many view it as a way to defray management fees. The trend is already playing out among sophisticated Canadian, European, S/East Asian investors, with many starting to own hotels, nursing companies, timber, airports. Expect the same upward trend in the U.S.
“Many of the large Canadian and non-U.S. domiciled funds are seeding managers—an incubation of managers in which larger funds seed a manager with a large allocation. This may be a trend that builds in the United States.” — Klaas P. Baks, PhD, Executive Director – Emory Center for Alternative Investments
Consensus that there is no general definition of EM. Investor/client defined. Funds have different parameters. MWBE. First time fund. Best strategy is to find a way to create a history with a fund and build the relationship over time. Funds are realizing they can’t be too rules-based on how they define EMs as some managers have 15+ years of expertise and want to stay small.
“As EMs emerge, it’s key that we don’t stop the advocacy. Successes are individualized; failures are generalized. We need to do more to share the successes.” — Dr. Kola Olofinboba, Managing Partner – Fairview Capital
Tell Your Story. Creating an institutional-ready pitch is challenging—but critical. EMs need to clearly and concisely find a way to define their difference—what unique point of view and expertise they bring to the investment table. An institutional-ready “pitch.” Be clear and communicate why you have an edge. Demonstrate how your process is repeatable. Investors need clarity on attribution—need to know who exactly on your team had responsibility / added value to deals in your track record.
“The team needs verifiable evidence that they can produce results.” — Adriana M. Clancy, Partner, Research & Portfolio Management – Corbin Capital Partners
“It’s easier to meet when you’re not asking for anything. The conversation can be more open, less rigid.” — Dr. Kola Olofinboba, Managing Partner – Fairview Capital
Be Proactive in Addressing Operational Issues. Be clear and realistic on how you assess and manage key man risk. Many managers fail to proactively address this—and as a result it remains a lingering issue for LPs. It is particularly important in hedge, where one person is often driving the strategy and process. Organizational risks controls need to be in place. Disparate geographies is often a red flag as it can be difficult to get cohesion when in different offices. How will the team operate in difficult times, when things go sideways? As you do your own research and due diligence, include social media in your sweep. Background check each employee – you want to know what’s in there. Get ahead of due diligence process—eliminate surprises.
“The focus is on how to get to the LP directly. Social media and direct reach is making this possible. Key question is… does this favor the larger GPs that have the bandwidth and resources to fuel name recognition and outreach.” –Unattributed
The Institutional Investor-Only Intensive
Moderator Sharmila Kassam, Deputy CIO – Employees’ Retirement System of Texas provided a recap of LP Think Tank take-a-ways, including efforts to create a best practice exchange in which LPs could share program successes, alerts and introductions to high performing emerging managers-and more. This year’s Intensive utilized a case study format to provide a deep-dive into different LP programs. Here’s a look:
CASE STUDY 1 | BUILDING A NEW GENERATION MANAGER PROGRAM INTO YOUR MAINSTREAM PORTFOLIO
Natalie Jenkins Sorrell, Director of Investments – Employees’ Retirement Fund (ERF) of the City of Dallas
According to Ms. Sorrell many LPs, EM and “mainstream” investing run in parallel; side by side and never cross paths. But increasingly, LPs are pursuing strategies where next (or new) generation managers are part of the core strategy. She believes, it’s working, as long as teams are diligent at every phase of the process—in seeking out smaller, next gen managers, in interacting with them, in ensuring the LP’s team has the bandwidth to keep open lines of communication.
CASE STUDY 2 | ASSET ALLOCATION ACROSS ASSET CLASSES FOR DIVERSIFICATION BENEFITS
Cheryl Hines, Director & Portfolio Manager – The Teacher Retirement System of Texas
Ms. Hines believes EM program are essential and are key tools for allocating to small firms. She noted Stuart Bernstein was tremendously successful in getting the money into the ground; he accomplished a great deal. Focus is now on ensuring that they build a program driven by the right people and analysis that will be sustainable over the long-term. There focus is on what they can do with an eye toward creativity and innovation.
CASE STUDY 3 | SCALING ALLOCATIONS TO EMERGING MANAGERS
Kenyatta Matheny, Senior Investment Officer – Private Equity and Emerging Managers Portfolio – Teachers’ Retirement System of Illinois
TRS is committed to building a diverse portfolio of managers. Over $7b has been deployed to women and minority managers. Strategy is to successfully deploy capital directly with EMs without the use of FoFs and MoMs. Performing EMs are transitioned into mainstream program. The fund has a graduate or terminate operating philosophy. The dedicated EM team is small and focused (two professionals); strong interplay with broader investment team of 14+.
CASE STUDY 4 | CREATING FINANCIAL VALUE THROUGH DIVERSITY
Scott Evans, Deputy Comptroller & CIO – New York City Employees’ Retirement System
CIO Evans presented a compelling argument for the value of diversity among teams—including the value diverse manager teams bring to the investment arena. New York City views diverse teams and decision-making as part of the overall operating mosaic—as a factor to be considered, just as a good succession plan would be. He noted that it’s not a factor unique to EMs, but one that is important for practitioners of all sizes. Diverse perspectives deliver a tremendous benefit. While it is not a deal breaker if the team is not diverse, his team views it as a clear and growing way for managers (of all sizes) can stand apart.
CASE STUDY 5| DEFINING THE PATH OF GROWTH – A NEW EM TRANSITION PROGRAM
Laurie Weir, Senior Portfolio Officer – California Public Employees’ Retirement System (CALPERS)
According to Ms. Weir, CalPERS is currently undergoing a strategic portfolio restructure to reduce risk, cost and complexity of its entire portfolio. The team is seeking opportunities that are repeatable, predictable and scalable. CalPERS has $90 billion allocated to external managers; in 2007 it worked with over 300 external managers, today that number is 200. Within the next five years, based on the plan, the target will be reduced approximately 100. The framework dictates fewer relationships, with more capital deployed to each. Additional proposed changes are focused on transitioning of EMs to provide a more formal, predictable and scalable plan to eliminate the gap between emerging managers and large established firms.
Consortium | Opening Session
What’s Ahead for the Asset Management Industry – Where do EMs Fit?
We learned that as funds continue to grow and market volatility mounts, institutional investors and asset managers alike will be operating in a new landscape. Moderator Lawrence C. Manson, Jr., Chief Executive Officer – NexTier Capital Solutions, LLC and Guest Speaker, Barry Benjamin, US and Global Leader, Asset Management – PricewaterhouseCoopers provided year 2020 insights.
Here’s a look:
- Heightened Focus on Risk: Advice to New Managers. History repeats itself—just with a slight difference each time. As hedge and PE continue to grow, LPs are demanding industrial strength operations. Back office must be in good shape to address risk, including tested controls. Don’t try to do everything internally; find trusted partners and manage them well. You might be able to do it better, but it will cost you time. That approach is much more credible and risk adverse than going solo. The areas to consider include all non-core activities – IT, compliance, etc.
- Manager Consolidation. Performance is always going to be king. As you try to differentiate – beyond performance – it will be around infrastructure, risk management, transparency of reporting, plan for succession, addressing issues for the long term. Most managers are focused on growing and managing money. How well you addressing all business aspects create distinctions.
- China. Door is now open creating an incredible opportunity to offer products registered in Hong Kong to China. Think about how to offer your acumen to advisors based in Hong Kong—or go in there direct.
- Asset Management 2020: A Brave New World (pdf of report) A key moving forward for EMs: You have to figure out how to become enterprise/professional not entrepreneurial. The bigger you grow, the more complex the operation becomes. 2020 report helps you look at the future landscape and ask questions re: how do you fit within the asset manager sector. What specifically is my strategy – what to do, how to grow. Stretch your thinking out five years and look at the large trends and your operation. Use this report to ask, what needs to be in place today to be where I want to be in five years.
CIO Investor Panel | Explore the New Asset Ecosystem
With investors representing more than half-a-trillion dollars on our stage, we received a rare, inside view on top LPs current ecosystem, including broad, bold moves to enVision long-term strategies moving forward. Moderator Kelly M. Williams, JD, Senior Advisor – GCM Grosvenor led us through a rich and informative discussion.
Key take-a-ways include:
Scott Evans, Deputy Comptroller & CIO – New York City Employees’ Retirement System
Mr. Evans shared that the fund has been active in the EM arena for 20+ years. The fund wants to continue to have exposure to PE well in to the future as well as with real estate – especially commercial. He noted that infrastructure is a new asset class being explored; the team is committed to understanding if they can grow/scale this over time. The fund, he noted, views all alternatives – including active equity and active fixed income — as optional, or literally, alternatives.
According to Mr. Evans, one of the great strengths NYC has is its proactive efforts to field a diverse team. It’s a core belief within the fund and because of that, the range of perspectives is huge. He noted that organizations restrict themselves when they work against the science that diverse groups make better decisions. Find ways to diversify your teams, take bold action –there’s a whole world of talent that managers should be seeking out. He shared that Toigo, SEO and others are proven sources for talent—find a way to work with them.
Ted Eliopoulos, CIO – California Public Employees’ Retirement System
Mr. Eliopoulos shared his views on alternatives—while optional, we’re persuaded they have a role to play. He noted the changing dimensions within the fund…it’s a maturing of the pension plans as baby boomers retire. This fiscal year, for example, is the first for the first time that CalPERS has less cash coming in as contributions from beneficiary and employers than benefits going out. It’s a major milestone that the fund has been preparing for over a long time.
Based on these shifts, he noted, capital deployment becomes different. Illiquidity and lock ups are more key than ever. Capital deployment is a key focus—a re-engineering of asset allocations; if something new is selected, something needs to be sold.
Mr. Eliopoulos share insights regarding global investors including a wall of capital coming from outside of the United States and how that landscape impacts U.S.-based institutions. This shift is having an impact, especially in core commercial real estate as well as PE term negotiation. It is impacting different funds and their ability to access deals and talent. On the flipsidle, the increase in capital is good news for managers as they will experience rapid and substantial change with more capital entering into the U.S.
A transition program, which will be formally presented end of June, builds on 20 years of the fund’s EM programs successfully transitioning. It’s been designed for Fund of Fund level and EMs to bring more discipline and formality to the transition process, he noted. It also allows CalPERS to identify those managers out of our program and beyond and have a formal, direct relationship. The goal, Mr. Eliopoulos shared, for them to grow to an established manager.
He also noted to expect more direct investments as part of our long-term visioning / 10-20 year plan. The fund is learning from its peers, especially those in Canada, he shared. Direct investments in infrastructure have been small, measured steps. He noted the fund wants to gain experience over the long-term.
Kim Lew, Co-CIO & Vice President – Carnegie Corporation of New York
Ms. Lew shared that her team is looking for inefficiencies, and they think there’s a better chance of finding inefficiencies in the alternative space. But that doesn’t mean they have to invest in alternatives, she added.
The Foundation has a 7.5 – 8% return target. Long-term in traditional investments, she noted, those returns are not possible.
The team focuses on three key components: Asset classes. Manager selection. Portfolio construction. She shared that they have 100 managers, a staff of seven overseeing $3 billion AUM.
She shared that the team has found many managers to be exactly the right fit, but their aspirations (to grow big) are the opposite of what the team wants, including long-term relationships. If someone says, I aspire to be big, she noted, they’re not viable option. Small and mid-size is ideal, Ms. Lew explained, about $400m. The ideal manager is fairly new and building business. At that size the team will take risk—and advice. And at that size, she added, my team can be a partner in building quality base of LPs, make introductions, and help them build relationships.
Afternoon enVision + inVest Breakouts
This year’s afternoon breakout sessions provided an opportunity for greater exchange between panelists and attendees. Small format workshops focused on asset class-specific issues as well as enVision panels with themes around fundraising, LP/GP communications and more.
Invest – Hedge Fund Speakers
Invest – Family Office Speakers
“We try to attract and deserve good deals. We do this by letting our partners know that we are permanent, often longer-term capital, that we are value-added and bring the full breadth of our resources to bear in our investments, and that we aspire to be good partners who are supportive without being overbearing.” — Rob Scaramella, Founding Partner – The Hudson + East Partnership
“Recently, we’ve started to see more clients who are going out of their way to say “we want diversity in our portfolios”. — Carlton Byrd, Managing Director, New Market Alternatives – Commonfund
“I put the hedge fund industry into three categories: business builders, academics and money managers. We try to avoid the first two and I think if you just ask open-ended questions and listen carefully they’ll put themselves into one of those buckets fairly quickly.” — Pete Keliuotis, Senior Managing Director – Cliffwater LLC
“I think it’s critical for emerging managers as a group, as a collective, to continue to find ways to advocate for the importance… you don’t have to compromise performance when you build emerging manager programs because people see that it’s not just the right thing to do, but it’s also extremely profitable.” — Dr. Kola Olofinboba, Managing Partner – Fairview Capital
ENVISION BREAKOUTS: Understanding The Investor
PUBLIC AND PRIVATE PENSION PLANS
Moderator: Laureen Costa, Managing Director – Private Equity Group of JPMorgan Asset Management
Laurie Weir, Senior Portfolio Manager – California Public Employees’ Retirement System
Joan Pratt, Comptroller / Trustee / Chairwoman – City of Baltimore / Baltimore F&P Retirement System / Elected Officials RS & ERS
Cheryl Hines, Director & Portfolio Manager – Teacher Retirement System of Texas
Moderator: Isabelle M. Perrault, Partner, Managing Director & Head of Business Development – Aurora Investment Management L.L.C.
Quint Barker, Managing Principal – GoldPoint Partners
Dianna Di Iorio, Portfolio Manager – Grosvenor Capital Management
Brian Mathis, Founding Partner – Pine Street Alternative Asset Management
Craig Huff, Co-Founder & Co-CEO – Reservoir Capital Group
FOUNDATIONS & ENDOWMENTS
Moderator: David Grain, Founder and Managing Partner – Grain Management
Monsignor Kevin Sullivan, Executive Director – Catholic Charities Archdiocese of New York
Carlton Byrd, Managing Director, New Market Alternatives – Commonfund
Rukaiyah Adams, CIO – Meyer Memorial Trust
Brian O’Neil, CIO – Robert Wood Johnson Foundation
Moderator: Joe Schlater, Founding Partner & CEO – Busara Advisors
Jaye Young, Attorney – CFT NV Developments LLC | Cherng Family Trust
Vanita Gaonkar, Director of Research – Ehrenkranz Partners
Rob Scaramella, Founding Partner – The Hudson + East Partnership
Matthew J. Allain, CEO & Co-Founder – The Leo Group, LLC
inVest ASSET CLASS BREAKOUTS: Investments at Work
PRIVATE EQUITY / VENTURE
Moderator: David Fann, President & CEO – Torrey Cove Capital Partners
Dr. Kola Olofinboba, Managing Partner – Fairview Capital
Evan Jaysane-Darr, Principal – Invesco Private Capital
Juan Sabater, Managing Director – Valor Equity Partners
Moderator: James Mitchell Jr., Managing Director – The Rock Creek Group
Anne Marie Morley, Partner and Managing Director of Operations – Aurora Investment Management, LLC
Pete Keliuotis, Senior Managing Director – Cliffwater LLC
Dominic Napolitano, Founder – Talson Partners
REAL ESTATE / REAL ASSETS
Moderator: Careina Williams, Principal – Acquisitions and Asset Management – Artemis Real Estate Partners
Greg Nyland, Portfolio Manager – CalSTRS
Jair Lynch, President & CEO – Jair Lynch Development Partners
Victor MacFarlane, Chairman & CEO – MacFarlane Partners
Steve Burns, Principal – Townsend Group
PUBLIC EQUITIES / FIXED INCOME
Moderator: Greg A. Shell, Portfolio Manager – GMO
Natalie Jenkins Sorrell, Director of Investments – Employees’ Retirement Fund (ERF) of City of Dallas
Stuart Kaye, CFA, Co-Founder, Portfolio Manager – Matarin Capital Management
Anirudh Kirtane, MBA/JD, Vice President, Strategic Investment Research Group – Prudential Investments LLC
Consortium 2015 | Four V Take-A-Ways
VISION | Exploring what’s possible when LPs and GPs connect.
- Alignment was a key theme throughout Consortium 2015. Understanding of the “other side’s” long-term goals and operating principles is critical. For some LPs, allocation sizes are on the rise; yet constraints regarding overall percentage of one fund remain in place. That means depending on a GP’s AUM, some LPs simply are not a fit.
- Deciding how large you want to grow is a key strategic question—and a theme sounded in the general sessions and breakouts, alike. Yet, few GPs have this strategic vision in place when they launch. Not every firm aspires to have $10 billion+ AUM; with size comes different cultural and operational challenges. Remaining nimble, responsive is (and may be) the right fit for some managers, while growing assets and transitioning to core programs is right for others. There’s no one right answer—it’s up to the GP to think through the issue.
- Some LPs, including foundations and endowments, see tremendous advantage in staying small; in fact, once funds grow their assets beyond the $2 billion mark, a GP may no longer fit with that LPs strategy.
VALIDATE | Sharing and comparing metrics that matter.
- Open, clear communications is a fundamental operating goal—in good times and challenging ones. It’s also critical as part of overall relationship building. GPs should keep the dialogue with LPs open and consistent; often, the LP team wants to observe your progress and growth both from an AUM and organizational development perspective. Share your successes periodically.
- Establishing gold-standard operational practices is critical from the start; this approach sends a strong, positive message to LPs. Managers don’t need to do this alone. Establishing a network of trusted partners for select operational areas, including legal, accounting, trade execution, and more is expected. Seek out recommendations from peers to source trusted partners—and be prepared to manage them.
- LP to LP and GP to GP “collisions” can be productive, providing a way for colleagues to share insights and best practices. Finding ways to intersect, including in-person and online, and share qualified perspectives will help drive growth throughout the EM community.
VALUE | Capitalizing on the value emerging managers deliver.
- Understanding the LPs goals and decision metrics, then articulating how your strategy specifically fits—and fills a void that may exist—is a fundamental first step toward telling your story. Find your wedge and articulate it; too many managers simply say what they do without expressing a point of difference.
- Opinions—and metrics—around the value emerging managers deliver is strong. Increasingly, LPs are sharing information about stand-out managers as a way to alert their LP colleagues of an interesting strategy, strong team, etc.
- Small allocations can make growing challenging as GPs must invest a tremendous amount of time and energy to raise assets and manage LP relationships. LPs have become more aware of this trendline and many are considering larger allocations to EMs.
VICTORY | Realizing returns when diverse approaches and perspectives are at the table.
- Returns remain the driver for success; growing AUM is not as some funds see their “sweet spot” at a size that may remain within many LP’s EM bandwidth (often $2 billion AUM).
- Building a team with diverse points of view is a proven way to drive better results. LPs and GPs alike are realizing this—and, increasingly, LPs are seeking out EMs and established managers that deliver on this front.
Focused, productive one-on-ones
ConsortiumEAST 2015 VIP Connect sessions put institutional investors face-to-face with emerging and diverse managers for short but productive conversations. The meetings proved to be a valuable opportunity to make an initial contact, or to re-connect and start a dialogue.
- 85% of managers participated in VIP Connect
- 80% of managers indicated the meetings met or exceeded their expectations; 75% expect a second/follow-on meeting as a positive outcome
- 88% of LPs attending VIP Connect indicated quality of managers met or exceeded their expectations; 66% expect to continue the dialogue with a second/follow-on meeting
enVision + InVest Awards Luncheon
“Talent knows no boundaries,” proclaimed the luncheon award moderator Robert Greene, President & CEO – National Association of Investment Companies. Each year the RG + Associates and the Emerging Manager community recognize individuals and organizations for contributions and expertise that have real and lasting impact. This year’s recipients include:
Standout Institutional Investor | Prudential Investments
For your unwavering commitment to the growth and success of the emerging manager space
Stand-out Emerging Manager | Hollis Park Partners
For your disciplined approach, strong track record, and compelling strategy
Stand-out Planning Committee Member | Cesar J. Gonzales, Jr., FIS Group
For your tireless commitment and service to emerging manager education
Stand-out Advisory Committee Member | Sharmila Kassam, Employees Retirement System of Texas
For your tireless commitment and service to emerging manager education
We invite you to take a look at our online photo gallery to see colleagues at the Consortium 2015.
Thank You to Our Advisory & Planning Committees
RG + Associates extends a special thank you to the members of the 2015 Advisory Committee and Planning Committee – your involvement, ideas and energy were instrumental to the success of Consortium 2015.
Consortium 2015 Sponsors
A special thank you to the firms that supported Consortium 2015 as sponsors. Your continued support help ensure LPs and GPs alike are poised to enVision and inVest with intelligence and confidence.
Sponsor — and Build Your Brand. Learn how to elevate your brand and capitalize on VIP benefits by partnering as a sponsor. Contact Renae at firstname.lastname@example.org. or 510-628-0345 x1.