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Zachary White discusses the value of diversifying with emerging managers
Key Takeaways
- Including emerging managers alongside established ones in your portfolio may offer an under-appreciated form of portfolio diversification, providing exposure to differentiated networks that may ultimately prove more valuable.
- As an investor, deploying capital with emerging managers helps you get in “on the ground floor” and establish early relationships.
- By investing in these managers you are betting on resourceful, “scrappier” individuals with growth potential.
Transcript
My name is Zachary White. I run a fund called Exits Capital. Exists Capital is a seed-focused venture capital fund, $20 million. And we help companies with their distribution.
Emerging managers and sort of first-time funds and people who are looking in spaces that aren't necessarily, you know, the status quo within venture can provide a very diversified edge to a portfolio If you have exposure to the Founders funds and the 8VCs and the Sequoias of the world. I think it's also good to sort of bifurcate that a little bit with sort of like the newer, more emerging managers and build those relationships over the long term. Eventually, you're going to find some great ones, you know, who are going to build these long enduring funds and long enduring platforms. And I think that if you're able to get there on the ground floor, you know, and build a long-term relationship with those managers, it will make the job of the LP a little bit easier, just having to follow on to two good managers that they found.
Oftentimes there are a lot of people who spin out of these kinds of larger institutions and require like quite a lot of infrastructure to be able to do their jobs well. But it's more than likely that they're going to go raise like 100 to $200 million. So that they can get the nice offices and have the systems and analysts and associates, etcetera. Whereas, you know, these sort of like first-time and emerging managers are really starting from very scratch.
What you're betting on here is network. When you're investing in sort of like this emerging manager, you're giving exposure to like these new networks and taking advantage of network effects that are a little bit more latently valuable, that aren't sort of mined to the core with like people that are constantly trying to leverage them. You're taking a bet on like a scrappier type of person. You know, you're going back like a $200 million fund that's already somewhat established. How high can that really go versus people like CO2, for instance, started with $45 million and, you know, like a small little office, and now we're managing $80 billion. And so I think that that's the kind of bet that you're trying to take.
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