The emerging manager industry has evolved over time (and multiple “versions”) in a search to meet the needs of limited partners (LPs):
- Version 1.0 is the most common approach whereby LPs are primarily focused on fund investing in managers’ funds 1, 2, or 3, and remains a viable way to access emerging managers.
- Version 2.0 broadens program mandates to include pre-fund investments (by capitalizing one-off deals), but can also allow for supporting managers after their third fund.
- Version 3.0, the latest iteration of emerging manager programs, is a full lifecycle, holistic approach in which LPs provide full capital solutions to managers, including deal capital, working capital, GP capital, and/or seed a manager.
As emerging manager programs and their parent investors continue to enhance their focus on advancing diversity, equity, and inclusion in the industry, some plans are adopting a “Version 3.1” in which investments can be made alongside established managers to further DEI initiatives. This can be done through:
- “Bolting-on” teams to less-diverse, larger firms as a way to match diverse senior talent with an established platform
- Investing through separate accounts (rather than fund vehicles) managed by diverse professionals
- Creating a pipeline for diverse talent by changing hiring practices
- Ensure inclusion of diverse vendors and suppliers
There remains much room for growth in the investment management industry, particularly regarding diversity, equity, and inclusion. Fortunately, due to the efforts of many LPs and GPs along with forward-thinking industry organizations and events like GCM Grosvenor’s Small and Emerging Managers Conference and Consortium, significant progress continues to be made.