WASHINGTON, DC – JANUARY 21, 2016
The National Association of Investment Companies (NAIC), the industry association for diverse-owned and emerging investment managers, today released findings from Limited Partner Perspective: The Opportunity in Diverse Emerging Managers. This study analyzes the experiences of limited partners (LPs) who invest in private equity funds managed by diverse general partners and why they invest in these funds.
Commissioned by the NAIC and conducted by Gregory B Fairchild, E. Thayer Bigelow Associate Professor of Business Administration Darden GSBA, University of Virginia, the study analyzes the results of a survey of NAIC funds and a series of interviews with leading LPs who have experiences and knowledge about the opportunities and challenges of investing with diverse emerging managers.
The study’s findings highlight the myths diverse emerging managers must face regularly, such as the misconception that they are not capable of properly investing large amounts of funds and therefore the bar would have to be lowered to evaluate their performance. Additionally, the term “diverse emerging manager”is sometimes thought to mean new or untested when many of the managers in emerging manager positions come to the field after training in established, larger private equity firms.
Another challenge Limited Partner Perspective points out is the difficulty many LPs have experienced in conducting due diligence on emerging managers as a result of being understaffed. Given the universe of more than 200 diverse and emerging managers, LPs keen on entering the market have outsourced some of the due diligence by using funds of funds to allocate capital. “Flocking,”or a tendency by LPs to gravitate towards larger, more widely known managers, may also be a factor impacting these managers.
The study concludes with Five Things You Absolutely Need to Do if You Are Considering an Investment Program in EMs, which offers helpful advice to LPs looking to invest with a highly qualified diverse emerging manager.
“While we have a number of research studies on the returns generated by diverse managers, as well as the impact of their investments,”says Robert L. Greene, President & CEO of the NAIC, “this is the first study to answer the question, ‘Who are the underlying capital allocators and what are their options and perspectives on investing with diverse managers?’ I believe their experience and perspective will inform and attract future investors to this vibrant market!”
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