On-Demand Webcast: Special Considerations for Diverse Investment Managers

June 30, 2020

Our panelists discussed special considerations for diverse investment managers during and in the aftermath of the COVID pandemic, and how those considerations are mitigated by the recent shift in the national conversation about inclusion.


Transcript

Brigette Lumpkins: Good afternoon. Thank you to everyone for joining us today for this timely discussion addressing special considerations for diverse investment managers. We are expecting over 250 guests today including investment managers, service providers, wealth advisors, and allocators, all of whom are eager to explore this very important topic. Given the current global conversation about inclusion, the timing of this program is fortuitous, but in truth, the session has been in the works for a couple of months. And I would like to thank my colleagues in the senior leadership at EisnerAmper for their support and trust and my ability to bring this topic to the market. Before I introduce our distinguished panel, a bit of very quick housekeeping, to any members of the media, please note that inside share today are not for attribution. If you would like to publish any specific quotes, please contact us. Note that today's session will be recorded and available for playback on demand.

Brigette Lumpkins: Further, the inclusion of our guest speakers today does not imply an endorsement or recommendation of any specific strategy manager or constitute investment advice. Now that our lawyers are happy, I'd like to do a quick round of introductions. My name is Brigette Lumpkins:ns and I am a director of business development for EisnerAmper based in Miami. I have raised both hedge fund and private equity capital and prior to that, worked on the sell side covering asset managers for European equity research and corporate access. We are joined today by Amy Nauiokas, founder of Anthemis Group of FinTech VC firm, Carl Powell, President of Emerging Markets and the Investment Division for Integral Group, and William Heard, Founder and Chief Investment Officer of Heard Capital. Amy.

Amy Nauiokas:Hi Brigette. Thank you so much. I apologize. I'm hearing a landline ring behind me. I don't think I even realized I had a landline anymore, but if it interrupts me I apologize. I'm thrilled to be here today. Thank you. I am as Brigette suggested, the CEO and founder of the Anthemis group, we are an early stage venture investor sectorally focused on financial services. Our thesis is really about backing digital businesses and models that are targeted at building resiliency in the financial system. We have just north of half billion under management, we have 100 plus portfolio companies and we operate in three offices around the world, New York, London, and Geneva, 48 employees, 55% are women.

We come from 14 different countries and we speak 30 different languages and a whole host of other fantastic stats that I could rattle off about our team. But I think that one of the reasons why I was so thrilled to participate today is that at our core, we're about three things; our guiding principles around collaboration and cooperation, virtuous cycle outcomes, which is really the old world for ESG, and diversity, inclusivity and equity so I couldn't be more thrilled to be part of this team today.

Brigette Lumpkins:Thank you so much. Carl.

Carl Powell:Hi Brigette, hi Amy, hi William. Amy you're not going to believe this, but at the same time, my house phone was ringing also and I was surprised because it also never ever rings so I'm not sure what the moment is, but I got the same call that you got, whatever it was. I'm Carl Powell as Brigette mentioned. I'm the president of the investment management and emerging markets group for the Integral Group. We are an investor and developer of mainly multifamily projects versus problem throughout the Southeast and we have developed over the years about four billion dollar worth of assets. We currently manage around 8,000 units again throughout the United State and we're currently launching a platform focused on affordable housing and workforce development.

Brigette Lumpkins:.Great. Thank you so much Carl. William.

William Heard:Hi, I'm William Heard of Heard Capital. We're located in Chicago, we're alternative asset and management firm. We have two strategies, the high conviction long only, and then a long/short, we invest in six sectors. Everything we do is fundamental and we've been at it since 2011.

Brigette Lumpkins:Great. Okay. Thank you so much. So again, thank you all for being here and so I'm going to dive right in. Today's session is called special considerations for diverse investment managers, which is not exactly the same thing as emerging managers to the popular term of phrase. I'd love to get your thoughts on the difference between the two terms today and their evolution over time. Carl, do you have any insights on that?

Carl Powell:I think historically we've thought about emerging managers as those managers with one billion dollars under management or less, and of course, diverse managers are those that are either demographically or gender non majority. I think over the years, those two things have merged together. I remember back in the day given the concept of emerging manager was first created, the goal really was to try to capitalize on bringing in diverse managers but now those two concepts are unfortunately combined, I think, and I'm an advocate strongly for separating them out. I think there's clearly a need for emerging managers, those managers that may have less than a billion dollars under management and would like to grow it to be a more scalable, if you will, platform.

But I think unfortunately for diverse managers, we are sometimes lost in that definition, and we need to be seen as a various targeted goal oriented effort for granting more diversity into the management ranks. And I think you have some data that has shown the very small level of management of capital that diverse managers have compared to the total assets under management. And so I think as long as those two items are a definition or combined together, we will continue to get unfortunately overlooked.

Brigette Lumpkins:Well, you bring up an excellent point, right? Fortune magazine recently published an article that highlighted a 2019 Knight Foundation study that stated that 98.7% of the $69 trillion managed in the US by most asset managers is managed by firms run by white men. And so when we do talk about diverse managers, is that still too broad or obtuse of a term, do women or specific ethnic groups have different concerns operating in this environment? Carl and maybe Amy, you can weigh in also on that question.

Carl Powell:I think the concerns are really focused around the opportunity to manage, right? And I'll give you an example, which is a good friend of mine Shumway Capital, Chris Shumway worked with Tiger Funds for a long period of time. He leaves and starts his firm many years ago with only 70 million under management, mainly from him and his previous boss, but he could very quickly go in and raise the $900 million if you will, from previous relationships that he had when he was working at the Tiger Fund. And so he's defined as an emergent manager in the same box as Carl Powell who is now trying to get maybe my first fund under management. So those two definitions and those two profiles, if you will, are not the same.

So I'm a very strong advocate that yes number one, we absolutely have to maintain the label of a diversity goal if you will, very capable managers that just so happens to be diverse as well as the notion of helping someone like Chris go from a billion dollars up to nine billion dollars, if you will and how it varies itself for funds over the course of his life cycle. But I think you got to have both of those.

Amy Nauiokas:Yeah. Carl I would agree with you completely. For me, I look at the moniker emerging manager and I think, okay, I've been an investor for more than 25 years, I've been a fund manager for more than 10 years but I've been a woman for 48 years, right? I'm not planning on changing that anytime soon. So on that basis, I'd like to consider that I'm looked at first and foremost as an investor with a track record, with credibility, and I don't want to be put at any kid's table so to speak. Now that being said, the problem is so massive and hasn't moved in any real way in the last 10, 20, 30, 100 years that we have to over index on diversity if we're going to get anything done. And we have to hold ourselves accountable as hirers and deployers of capital, but we have to help the LP community just as accountable and the allocator community because it's that money that is landing in the hands of, as you say, 98% plus of white men and that has to change.

Carl Powell:Brigette and you are right. But I think the question that’s starting to be asked is not only how diverse groups like the police and corporate boards are being structured for diversity and how many teachers or coaches that we have in the NFL or NBA. I think the same conversation is now being heard inside of the ranks of asset management group and how diverse are they. And as Amy mentioned, before we came on air, we've had conversations at a high level for the past 20, 30 years but I think today there is another element of urgency of asking some of these pension plans, how many diverse managers do you have, period. And that answer I think right now should be scary for a lot of them.

Brigette Lumpkins:.Great. I couldn't agree more. So William, I wanted to direct the next question for you. So we've defined what we think a diverse manager is and sort of how you want to be defined, especially vis à vis emerging and making that distinction. Starting day one, you're already a successful investor whether you're launching out of another shop or have a track record but you decide to branch out on your own you need CapEx, you need office space, you need to hire staff. And you mentioned Shumway which I used to cover by the way, back in the day. As a tiger cub, many seeders provide office space, capital, access to investors, and Carl you alluded to this, do diverse managers have equal access to seeders or are they more often self-funded? William, what was your experience launching Heard Capital?

William Heard:So I do think the seeders are open to conversations. I took a different path. I took the more organic approach to building out my firm. I think all things being equal, we don't have that a halo coming up. I didn't have that halo coming out of a larger firm. But my plan was to study both those that had launched, have a good sense for what my plan would be, have the ability to articulate that plan to folks in real time, establish milestones and really even folks that... I had a path of a vision and I think framing that gave some folks early comfort that it was possible.

But it's certainly, it’s not the easiest path in hindsight. And I think people are willing to have a conversation, but I think you also have to know what you want and you have to know sort of kind of what the vision is and stick to it because all capital it's not equal and I think you have to be like extremely realistic and pragmatic about aligning interests and making sure you understand what comes with it. So again, I took a different path, I think they are willing to engage but it's not the same.

Brigette Lumpkins:So I'd love to hear you tell me a bit more about that when you say all capital's not equal. I know for example right now you have first loss capital opportunities, and I don't know if you experienced any of that when you were launching because I know it's a fairly newer phenomenon. But when you say not all capital's not equal, can you tell me more about that? And also in retrospect, is there anything that you would do differently? Because it sounds like bootstrapping, it was kind of challenging. How long did it take you before you felt that you were a going concern?

William Heard:Yeah. So to answer your first question about all capital not being equal. I think it goes back to your plan and your vision. In my case, I think extremely long term, we took on names for five years or greater, and it's three to five new ideas a year that sometimes might not be sort of what seeders are looking for. So I think the environment sometimes can dictate the terms. What I really want it to be was have the autonomy and the flexibility to invest. So with that being said, I guess what I learned was, first loss wasn't something that made sense for that type of approach for investing. We're not traders so I think certainly that type of capital didn't make sense either.

So I think stepping back, it's really about the alignment of interests, understanding how you're compensated and why and really being crystal clear and having the willingness to put things into writing as opposed to just sort of go out there and believe that you can invest with crucial to buy, like my start. And then also having the willingness to invest through the proceeds to help you grow. I think also helped me extremely disciplined about what partnership meant because it's funny that isn't that "investment risk" but certainly it's gone into building the enterprise. So I would argue that's just big as a risk. And your last question about what goes into it or my experience, that was your last question, right?

Brigette Lumpkins: Really more so like how long was it before you felt very confident that you were a going concern, right? Since you bootstrapped it and were very selective about the capital you accepted.

William Heard:Yeah. So because I had milestones, I think I always knew that I guess I could pull it off and I was extremely disciplined, you know what I mean? So I think obviously the environment's changed as opposed to nine or ten years ago. But I think you need enough, one way through a bad time to be able to keep your eyes focused on like the investing process as opposed to running a business. They're two very different skills and I think you want to engage vendors that understand where you are, where you want to go and that believe in that as opposed to just vendors in general. So hopefully that answers your question.

Brigette Lumpkins:.Okay. And I do want to ask Amy and Carl what they think about this, but you mentioned something that pertains to my next question which is around the service providers and vendors. And that's obviously a very important part of starting a fund. What was your philosophy when balancing whether to be a big fish in a smaller pond or a small account at a larger firm when you forged these relationships? And I'm going to come back around to you Amy and Carl if you care to comment.

Amy Nauiokas:Yeah. I think for us when my partner and I started our firm, we didn't really have much of a choice, right? It didn't feel that there was a lot of obvious capital out there for us. And part of that was because we didn't live in the boys club and certainly in the Silicon Valley club that a lot of the traditional early stage ventures were getting funded very easily and it wasn't our network, they weren't our people. And so we struggled in the early days to figure out how to fund this particular dream. And then it was sort of compounded by the fact that I think our first day of fundraising meetings was the Monday after Lehman collapsed. So you can imagine it wasn't a conversation that was landing on very welcome ears.

And so it was an interesting, and maybe even some ways serendipitous moment for us, because it forced us to have to put our money where our mouth was. And so we funded it ourselves in the early days and through the support of some really close friends and family. But that is a specific and very privileged position to be in. As a new manager, a lot of folks don't have that opportunity, but we were kind of entering a marketplace where all we could see was opportunity for investment and very little cash but we didn't have the obvious network. And so I think many years later when I think about funding new companies, that's one of the things that I always say to startup founders is that, particularly now when there's a lot of capital out there, be very careful who you're taking your capital from because anybody can write a check, but not everybody can be there, and as William talks about, see your vision and back you for the long term, right?

And I'm often sort of, we were recently touted on one of the lists of seed investors to watch along with all these really wonderful names of people who everybody knows, and then we were in the middle and no one had ever heard of us. And I'm thinking to myself like, this is a great thing but at the same time, why has nobody heard of us? We've been around for so long. And I think that part of it is that we weren't swimming in that kind of same, I keep saying the word boys club, but that sort of same boy's club over and over again. And so there are investors out there that are actually willing to back you, you just have to work a little harder to find them.

And I do think that there are also now more than ever, I'm super pleased about some of these seeding vehicles that are coming out that are specific for women fund managers or specific for people of color and I do believe that that has to happen from an over-indexing perspective, but I think the challenge is we have to hold people accountable for actually doing what they're saying and to not fall into some of the traps that we often hear which is, well, we're working towards a quota of having to see so many women this month, but we're not necessarily going to allocate to them. Or there just aren't that many women out there or there aren't that many people of color out there who are looking for capital, which I think are cop outs because we know that to be absolutely not true. And again, so it's about really pushing people to put their money where their mouth is.

Brigette Lumpkins:.Okay. I'm sorry, go ahead.

Carl PowellWe were strategic about selecting the brands that everyone was accustomed to. We were strategic about going and getting these top branded providers because we thought it will be very helpful in the negotiation and solicitation of limited partners. I think we've learned over the years that what's important is defining the best characteristics of what it means to be the best partner to work with you strategically. I think like William mentioned, we initially focused on the list of attorneys and accounting firms that were the higher branded service providers. We've navigated down or across now to get the best providers regardless of brands.

Brigette Lumpkins: I think you make an excellent point there. I don't know William or Amy if you have any thoughts on that with regard to your business partners from a vendor relationship standpoint and whether top market share is the primary driver or longterm strategic partnership and support is more important to you.

Amy Nauiokas:For us, it's definitely longterm strategic partnership and support. I hate that phrase. My partner always used it. So eat your own dog food, so to speak. So when we're looking at aligning ourselves in the earliest days, if you have the choice, choose somebody that looks and feels a lot like you and you're going to probably have a lot more in kind of longterm incentive and alignment. I think the really interesting thing that we're seeing in fit as far as financial services providers go right now, is that a lot of the winners right now around partnerships have been in the companies that are emerging to support small and medium size enterprises.

And so I think that kind of concept of these big brand names and these big behemoths we saw in the crisis that a lot of them couldn't deliver the PPP money that so many companies were requiring. And so I think you have to think that there might be some challenges out there to the title of big brand and I'm quite excited about that because I think it's going to show us that we can do things a little bit differently with perhaps different players. And they're thinking about things in a much different way that I think supports the growing needs of small and medium enterprises.

William Heard:I agree.

Brigette Lumpkins:William, did you have anything to add to that around service providers?

William Heard:Yeah, I think at the end of day you want to achieve balance and I think you need to be pragmatic and asking them questions because they are certainly doing the same of you. So balancing and knowing who is on the other side of the equation before you move forward is key.

Brigette Lumpkins:Right. That understood. So moving along in the life cycle of a firm, now you're raising capital, right? So raising that LP capital is a slog and we've talked about this before, attending the Context Summit for example, which is huge for alternative investment managers is over $10,000 and that's if you sign up early. Well, most conferences has gone virtual for the time being. I think the top events will return eventually. And Amy, you've talked about the boys club in the Silicon Valley. Do you think the current shift to virtual meetings levels the playing field at all with respect to fund marketing, or does it present a different set of challenges? And I'd be curious to get all of your opinion on that when it comes to raising capital in the current environment.

Amy Nauiokas:I think it absolutely levels the playing field. And I guess in my own world, I have to wake up optimistic everyday to think that things are going to change. And I have to say, even since March, what we're finding is, A, there are a lot less excuses as to why you can't take a meeting. So even if you otherwise might not be interested investing in somebody, there's a lot of folks sitting around with a lot of extra time on their hands. And so that was actually really helpful and we were in the middle of a fundraise when we got into lockdown. But what I'm hopeful that's going to happen for everyone who's raising capital, including individual entrepreneurs that are starting companies, is that if we take away this need for everything to happen from this kind of epicenter of the Valley, and we believe which most of us truly do that anybody can raise money, anybody can deploy capital and anybody can build a business anywhere around the world.

And while we're continuing emerge from COVID kind of acting locally, I think the investment world becomes much more global. And so looking for people who know how to deploy capital with a global mindset and who can find just as good of an idea in the middle of America as they might find in San Francisco, I think that's a huge game changer and a lot of it will be how we go back to work, right? And we keep talking at our team about not going back to normal, but going back to a new normal. And if we can as fund managers and as participants in the financial system, be in a position to set new norms and new rules that actually make capital more accessible to everybody and more transparent in how people can raise capital, everybody's going to be in a better position. But it's going to take some work, right? Because I think our natural instinct is to just go back to normal, but normal wasn't working. It wasn't good enough and we can do better.

Brigette Lumpkins:Certainly not for this group. What do you think, William?

William Heard: To my experience, obviously it creates a different challenge. I'm better in person than probably over a video. But I think with that said, the great allocators are certainly willing to engage. And even some are doing operation due diligence, you know what I mean? I think it just comes down to a level of trust and making sure you're all on the same page like what you're talking about and what the desired outcome is. So different challenge but I don't think there's a substitute for looking at a person in the eye and sort of shaking hands and getting it done.

 

Amy Nauiokas: And I think the requirements of some of the larger institutional investors forced that, right? And I think your point is right William, we're finding a lot more flexibility in larger fund to funds or family office, multifamily offices than we are in traditional institutional investors and in endowments where they've got requirements to physically meet in person. Carl any thoughts on that question?

Carl Powell:No, I think it was well covered. I would say the seriousness of our business has been allowed to be slightly more casual over the last couple of months in terms of the interactions with the people that you are engaged with. I think from even their attire and talking to folks and the tone and talking about subjects, it is a little dial down from the level of intensity that we would normally be going through in order to convince someone just to take a look. And so I think I agree with both Amy and William and there are certain handshakes that you have to still shake but there are certain outreach to different groups that's a lot easier now, given that the protocol of Zoom for introductions is acceptable when that protocol for introductions used to be a trip to New York or to London or San Francisco or South Africa or whatever.

So when it comes to the cost of success, if you will, if you can narrow down that first, second, or maybe even third conversation via the electronic platform, then as an emerging manager or as a diverse manager, you have been able to lower your costs to get into the game. But I agree William that you still will have to eventually shake the hand and let folks know if you ask me for 100, 200, $300 million, you're just not going to close that deal electronically. But I think these early meetings have been more helpful to do via Zoom because sometime as you know, you fly up to New York and you have a two hour meeting and the person had really no interest and you sit there and think, "Why the hell would you have me fly way up here?" So at least I can get a feel for if they are serious or not by sitting in my house here in Atlanta before I actually get on that plane, because I've left many meetings thinking, "What the hell was that?" So that's what I think.

Brigette Lumpkins:.It's a lot easier for your internet to go out than to have to walk out of a room, right, Carl?

Carl Powell:Yeah. I can use the excuse now to end the meeting myself. Oh wait, that's my wife's calling. I'm sorry. I have to go.

Brigette Lumpkins:.Okay, so I'm going to share the results here because I think it's pretty interesting. So of all who are participating, the question was, which of the below actions would best help investors improve their allocations to diverse investment managers. And 9.5% of you said refocusing emerging manager programs to specifically target underrepresented managers. 19% said increased allocation to diverse investment managers. 42.9% said reevaluate the decision making process of how funds are allocated. And 28.6% said, focus on hiring more for diversity within the organization. So I think that's very interesting. I would have expected maybe a little bit more on question number one. Before we move on to the rest of our questions - panelists, do you have any thoughts on the results of our poll question?

Amy Nauiokas:Well I like that the second most popular answer was focusing on hiring more diversity inside of the organization because I think that's a pretty good rule of thumb, right? When you board an airplane, if any of us can remember what it felt like once to fly, that you're always prompted to put your own mask on first, right? And I think if you can't look at your own team and recognize that they represent the world around us then you're going to really struggle to find investments or managers or partnerships that will allow you to authentically deploy in that manner. So that was positive to me. And I guess on number one, yeah, for sure reevaluating the way you do due diligence. The questions you ask, how you ask the questions, maybe doing a little soul searching or kind of Monday morning, quarterbacking on some of the managers that you've passed on that were diverse managers and figuring out maybe how you've alienated them and or if there was anything biased in your particular process would be really helpful.

Brigette Lumpkins:.Any other thoughts? Okay.

William Heard:I concur.

Brigette Lumpkins:So here's a question and I'll just throw this out there. So once you got a prospective investor say in your data room or interested in the conversations you're engaged in this conversation, have you observed or experienced a sensed that maybe the due diligence is a little different for you than it might be for your peers with similar strategies, similar tenure, but maybe who don't look like you? How do you get out in front of this to provide that additional reassurance to allocators if you get a sense that that's kind of what's going on? Anyone can take it. I think Carl is trying to speak, but Carl you're breaking up a little bit. I'm going to go to Amy and then I'll open it back up to you.

Amy Nauiokas:Yeah, for sure. We all I'm certain have had these experiences, and it doesn't happen all the time. I think it's really uncomfortable and it's super awkward because to find out as an example that a major allocator, kind of major brand named allocator on their final leg of due diligence spends two hours with each one of the principals in the GP and that the two male principals get asked questions for two hours about myopic parts of the thesis or our portfolio model allocation and I don't find out till later that I've been asked two hours’ worth of questions about how do you balance your work and your life, and how is it when you have all these children and how do you manage that and how can you possibly stay focused?

And then you find out that the reason why they dinged you was because Amy might be too busy and it stings on all the levels that it would sting on particularly because you didn't ask me if I was managing my portfolio properly or how I view the thesis, you only asked me about my kids so of course I'm going to tell you about my kids. But it's awkward because I can't, what would you do? You go back and you point finger at them? I don't know. You want to, but it happens a lot. It happens probably a lot more than people realize it. And I think sometimes, most of the time I don't believe when it comes to gender discrimination that it's necessarily overtly malicious.

I think a lot of it has to do with bias and just a little bit of ignorance and not realizing the position you're putting people in. But it's not easy. One of the ways we've gotten around stuff recently which has been really helpful is to have our team ask for very specific feedback and we have been encouraged that when we see or hear something that feels a little bit off that we'll open dialogue on it because it doesn't matter if we don't get the capital but it certainly should be a point that they recognize for the future diverse manager that comes their way.

Carl Powell: Can you hear me now Brigette?

Brigette Lumpkins:.Yeah. Perfect.

Carl Powell:Okay. Thank you. I think we have historically had very little data because there were not a lot of diverse managers managing capital to prove and show the element and capability of creating a return. And so I think historically, there may not be necessarily bias intently but there was bias analytically if you will. Analytically meaning that you were not able to show if you are a consultant that there were at least these type of managers performing at a high level, because there was not a number of those managers that were allowed to perform at a high level. That is gone out now because even though the numbers only 1.8% of the seven trillion dollars that's on the management, the data shows clearly that diverse managers perform at the market, and most times above peers when given the opportunity. And so now it really is a matter of increasing the opportunity pool for diverse managers.

Brigette Lumpkins:.Okay. So I want to stick with you in sort of a related question Carl, and get your thoughts on some of the programs that focus specifically on diverse and or emerging managers partly to mitigate this question. And specifically about that, I've heard from some diverse managers that while these programs provide access and visibility, sometimes they may pay lower fees which constrain GP from a revenue standpoint. I've also heard that it is very challenging to graduate from these programs and perhaps the revenue constraints contribute to that. What are your thoughts on navigating this dynamic and is my observation accurate? Eager to get your thoughts.

Carl Powell:I would say yes. I think the very first thing that I would articulate to diverse managers is, regardless of the program we have to get into the game. And if the only way to get into the game is via the goal management funding process then I think we have to take that shot. Am I coming through okay?

Brigette Lumpkins:You're good now. You're good now.

Carl Powell:Okay. Very good. So I would say let's just get into the game. The fee structure for a fund of funds, analytically we know that you are crammed down as that manager from the amount of fees that you can take to build and grow your organization. But I think William will attest, most of us are used to doing what we have to do to build our business on a budget let's just say. And so I think what happens down the line to grow out of that fund to fund strategy has to be part of the both relationship with your direct fund manager and the ultimate LP, if you will at the top, that signals a program or a strategy that can help you grow from being an emerging manager to a full blown manager.

But we can't have that conversation unless we first and foremost get into the game. And because a lot of the large allocators tries to limit the number of relationships that they can facilitate or manage, if you are less than a billion dollars or if you're only $500 billion for certain allocators, they just don't have the internal processes of managing all those relationships. So there is an efficiency for them that allows you to get their capital through an experienced manager. The idea is to make sure that experience manager is in proper protocols step with you to grow out of the program.

Brigette Lumpkins:.So alignment of interests. This has been a great discussion. We have a little bit more ground to cover. And William, I really wanted to ask you a specific question around talent management, because that's also another I think special consideration for fund managers who are outside of the mainstream, and I wanted to get your thoughts on, obviously our most valuable assets are our people. Have any of you experienced or observed any challenges attracting and retaining and developing top talent given that you're coming from a diverse manager standpoint? I want to throw that to you first William.

William Heard:Yeah. So pre COVID we had an internship program that Priya and my partner Joel put together. It was pretty detailed and sort of really instilling in them the process in which we think an underwrite investments. I think mow that internship program is put on hold, emphasis now is on making sure that if and when we restart, we're able to get back in front of those folks and bring them back with the intent of continuing it. So certainly we've had to solve for it in real time, but I think to your point talent's the most important, it's one of the most important pieces of the puzzle and putting together something that can last and it takes a lot of thoughtfulness in both programmatic, mentoring, challenging, just making sure all the pieces are there to make sure that the investments make sense long term where you get the multiplier effect. That's how we approach.

Brigette Lumpkins:.And have you observed, and you can take this William or anyone else who has had this experience that really desirable candidates or difficult to attract to your firm or more difficult or that once you've trained them, that they have a tendency to move on, maybe to get some sort of objective or perceived pedigree on their resume that is validated by the mainstream. And is that a dynamic that you observe or not something that you've faced as a founder in the space?

William Heard:So my view is in this business, people start how they want to finish. So at the end of the day, I feel like if you see them sort of like signaling that, it's just a reason to move along. We try to be so clear about what the expectations are, provide like a path that is reasonable and just make sure it's the right fit. A lot of work goes into that decision like, what's the word, aside from me, my partners play a big role in that. So I think you can sense it but you just have to be willing to move along like you would an investment.

Brigette Lumpkins:Amy or Carl, anything to add to that?

Amy Nauiokas:No, I would just add that the value and benefit of trying to match your hiring strategy with the strategy of how you also wanted to deploy capital and what change you want to see in the world is probably crucial because it makes a lot of sense but it's also crucial for deal flow, right? So the reason why a manager can access deal flow and opportunity in different pots is because they have different types of people on staff. And I think that that's crucial for generating alpha for investors is knowing that you're swimming in different ponds. And I think when we talked earlier about the benefit of having different places you can go for capital, it's the same thing that we're tapping different networks because we're hiring a more diverse team.

And so I think that people in talent, we often say that sort of deploying human capital is almost as important for us if not more important than the financial resources that we deploy and so making sure that that human capital looks and feels like the change we want to see in the world is hugely important, but it's also just good business. You're going to be different than everybody else if you hire people differently than anybody else. My biggest fear that I actually hope happens is that other people will start realizing the value in hiring diverse employees and then we won't look so different or as we've been called weird. But the good thing is, and that will just mean that we're moving the needle.

Brigette Lumpkins:.So with the economy in turmoil and the market increase in volatility, you would think that allocators with dry powder would be ready to deploy. Is that an accurate assessment of investor appetite? And if so, when you have these market disruptions or dislocation and there's people chomping at the bit to get things at a discount, do you believe that diverse managers have equal access to the capital that's being allocated? Carl, I'd be curious because I know real estate I think is a really good asset class for this question, because obviously people are expecting depressed asset valuation. So do you think that in the rush to acquire assets that you'll have equal access or will it sort of follow along the same patterns as we've discussed earlier in the call?

Carl Powell:Yeah. I will not have equal access because the reality of the matter is that even in times like now, allocators typically allocate more to fund managers that have already been underwritten or are in their program. And so unless you are already part of the CALPERS, emerging manager or diversity program or whatever, when the market changes like it did in the March, you unlikely are going to go out and find new fund managers that quickly. And so you have to already be, if you will, in the mix, be in the partnership in order to take advantage of whatever the market opportunity is at that time. So I do think allocators will look more strategically in certain areas, whether it's equities or real estate to fund managers that have already been allocated some amount of funding. But in a rush at the time to find new managers during a time of turmoil or disruption, allocators are going to choose specific managers that they already know and that they have already underwritten.

Brigette Lumpkins: Right. Amy, I don't know if you have anything to add. We have one more question. I wanted to go cover a little bit of ESG so I don't know if you want to take that or you want to focus on ESG topics since it's so top of mind for so many people now.

Amy Nauiokas:Yeah.

Brigette Lumpkins:. So on ESG, obviously it's been on trend for several years. You talked about virtuous cycle outcomes, which I really like that turn of phrase, do you think the market expects diverse managers to focus more on social impact or ESG or however you want to phrase it investing, and do you think diverse managers have an obligation to do so?

Amy Nauiokas:I think it's a great question. And it's a tough one for me because when we started this company, we did so with virtuous cycle outcomes as our core but we never deliberately said we were only doing impact investing. And I actually think it's one of the many things that we get tagged with as being weird, right? That we're deploying capital to things that are actually focused on good and not evil, but we don't make or meet the requirements of traditional ESG. And I think whenever you put these buckets around things, it makes it easier for allocators to sort of figure out, okay, can I check this box? Do they do this? Do they do that? And I think we have to appreciate that part of that box checking exercise is to help, not level the playing field, but thin the playing field to sort of say, okay, if I have this much money to put against ESG, I've got to just make sure they qualify that.

But I think at the core of everything that we're doing as capitalists, we need to be exercising a moral obligation to deploy capital for good and not for evil. And particularly off the back of this recovery, COVID-19 is not unique in it's devastation of the economy. We've seen things like this before, but what it is unique in is the number of people that are going to be negatively impacted by this. And so as investors, I feel we do have a moral obligation to be deploying capital for companies that will help us be more resilient to shocks like this in the future or to people in teams that need this money to make the world a better place.

And if that makes us weird or potentially bleeding heart liberals, I guess I'll take that because if the power and the capital that is at our fingertips as investors isn't being used for the right things, then why are we even doing this? And I think there's also your question about obligation as diverse managers. It's just the right thing to do, but it shouldn't shy away from the fact that there's a lot of money to be made and doing the right thing. So if you have to choose, I'd take that over making the money and the wrong thing.

Brigette Lumpkins:.Any other thoughts? I wanted to get to one of our audience questions I think is very interesting, but before we move on, if anyone else has any sort of social impact or ESG or virtuous cycle outcome of question thoughts or insight.

Carl Powell:I think it's just smart given the returns that ESG related funds and managers have produced over the last many years, I think we as diverse managers have to also show that you can continue to do good and make money at the same time. There was a $20 trillion or so expected from the millenniums, women and high net worth individuals, or the next 10 to 15 years as suspected to go into that bucket. So I think we have to lean in to what we already have historically been doing in order to make sure we're in a proper position to maximize our ability to match that capital.

Brigette Lumpkins:Great. Okay. So I wanted to move on to some of our audience questions. We got a handful and a couple of them were really interesting. One of them comes from Casey Robinson from Cassia Partners and just I'll throw it out there and anybody who wants to take it, let me know. And she says, and Amy you talked about this a little bit. So you might like this one, there's some research about startup funding that women founders are asked more questions about downside management versus upside potential than men founders. Any of the panelists found that in their experience with institutional funders.

Amy Nauiokas: Absolutely 100%, no doubt, no doubt. Happens almost every meeting I have. That said if anybody is out there trying to raise a fund or get ahead of that question, we don't and shouldn't have to accept it but you have to figure out a way to pivot that to answering the question that you want to answer, which is how am I going to make you money and how am I going to manage your upside returns and not necessarily focus on the negative or the downside?

It's a fair question. Our team is of mixed gender and so I happened to see how those questions get directed often and so that's really interesting because I think we've got about 60% of our fund managers are women and so we can see in a room how it gets directed to one and not the other. It's not easy to call it out in the room and I don't necessarily suggest that people are trying to raise funds to do that. But you have to be aware of it and you've got to figure out the best way to get to where you need to get to inside of the due diligence that the allocator is required to collect.

Brigette Lumpkins:.Okay, I'm going to ask one more before we wrap it up because we were really bumping up on time, but someone's looking to launch an absolute return hedge funds is Andreas Choa, and he's adding the final touches to his prime trading model so the launch is expected end of 2020 and he's Hispanic, he has CFA, degrees in finance, experience but doesn't have the network or capital from friends or family. So any advice on raising capital?

William Heard:Take your time, really focus on what partnership means to you, write it down and don't deviate. The skills that you have, you don't want to trade that short term capital for the opportunity to build something that will last. So bet on yourself, continue to bet on yourself, write everything down so you keep your decisions objective and not emotional. And really see out allocators that you really think you can learn from and grow with and that you believe will be supportive of your vision as opposed to just trying to go out and raise money. I know it's painful. I know it takes time and if I can help out, let me know.

Brigette Lumpkins:Certainly if you'd like to connect to any of our panelists, you can feel free to contact us at EisnerAmper and we can put you in touch. Any final thoughts from any of you before we wrap it up today? I think you guys have been very generous. I'm sorry, go ahead Carl.

Carl Powell:Thank you for hosting the conversation.

Brigette Lumpkins:.No, thank you. Really this has been enlightening for me and every time you think you know something, there's always opportunities to learn and I got great vocabulary from Amy and also more insights, especially from William and you Carl so we are so appreciative to have the three of you join us and I'm sure our audience really appreciates it as well. So thank you very much. Thank you to our audience for making time today. As I mentioned, this session will be available to listen to on demand on our website in case you miss anything or would like to share it with your colleagues. We do hope you found it helpful. Stay safe and be well over the coming holiday.

 

About Brigette Lumpkins

Brigette Lumpkins is a Director with over 20 years of experience in sales, client development, and account management at Fortune 100, start-up, and small to medium sized companies in the investment management, capital markets, media, and health care industries.