Emerging managers offer unique advantages that can be highly attractive to family offices seeking diversified, higher-return investments. The benefits of emerging managers include accessing niche markets, their agility, better alignment of interests, and the potential for differentiated performance.
1. Unique Access to Niche Markets and Undervalued Assets
Emerging managers often specialize in niche markets or sectors typically overlooked by more significant, established funds. This specialization allows them to identify undervalued assets that offer substantial growth potential. For family offices, investing in these managers means tapping into unique opportunities not readily available through traditional investment channels.
These niche markets are less crowded, reducing competition and allowing emerging managers to secure assets at more favorable prices. They leverage their deep sectoral knowledge and networks to access niche opportunities, offering family offices a path to diversify their portfolios beyond conventional asset classes.
One simple question we ask to determine a niche strategy is, "Can the strategy manage $1 billion?" If an emerging manager has a potential capacity of $1 billion or more, it's likely not a niche strategy.
Many of the family offices on the Ashton Global platform seek to identify capacity-constrained strategies where performance may start to erode above $250 million for example, and will invest at a lower AUM to capture the alpha of a capacity-constrained strategy in the early stages of the fund life.
2. Agility and Responsiveness
Another critical advantage of emerging managers is their agility and responsiveness to market changes. Unlike larger funds, which often have complex decision-making processes and substantial assets to maneuver, emerging managers can pivot quickly. This agility is crucial in rapidly changing markets, where the ability to capitalize on opportunities or mitigate risks can significantly impact investment outcomes.
Partnering with nimble managers means being at the forefront of market shifts for family offices. It allows dynamic asset allocation and exploits time-sensitive opportunities inaccessible to larger, less agile investors.
3. Strong Alignment of Interests and Collaborative Approach
Emerging managers are typically more aligned with their investors' interests. Many such managers invest their capital alongside their clients, ensuring high commitment and risk alignment. This aspect particularly appeals to family offices, which often seek transparent and closely aligned investment partnerships.
Furthermore, emerging managers tend to adopt a more collaborative approach with their investors. Family offices can benefit from this closer relationship, gaining insights into the investment process and having a more substantial say in the investment decisions. This collaboration fosters a more attuned partnership to the family office's specific goals and risk preferences.
4. Potential for Higher Returns and Differentiated Performance
The pursuit of higher returns is a fundamental objective for most investors, and emerging managers often hold the promise of above-market returns. Their focus on unexploited, high-growth potential markets and their agility position them well to achieve superior performance.
The target return for managers on the Ashton Global platform is 20% annual returns net to LPs for public equities strategies and thresholds of 25% to 30% for alternative investment strategies. Interestingly, the capital providers and family offices on our platform seek credit strategies that deliver equity returns, which is often challenging for many credit managers applying for funding.
Emerging managers are bound by different benchmarks and constraints than their larger counterparts. This freedom allows them to explore unconventional strategies and take calculated risks to generate differentiated performance. For family offices, this means access to potentially higher returns and a way to differentiate their portfolios with emerging managers.
5. The Benefits of Emerging Managers for Diversification
Emerging managers offer family offices unique market access, agility, substantial alignment of interests, and the potential for higher, differentiated returns. As such, they should be considered a vital component of a diversified investment portfolio. Emerging managers provide unique access to niche markets and undervalued assets, allowing family offices to capitalize on opportunities often overlooked by larger funds.
