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On September 22, 2021, members of the MITIMCo Operations and Investment teams hosted a 90 minute webinar to answer the legal, operational, and set-up questions for emerging manager public market stockpickers.
For those that missed the webinar, you can find the video from the event immediately below:
EMERGING MANAGER OFFICE HOURS WEBINAR - VIDEO LINK
After the event, we got a thoughtful request to summarize our answer to the following question. We include our response below as a bonus
Question: can you be more specific about common mistakes or sources of failure when it comes to how people manage their firms and operations (as opposed to investment-driven sources of failure)?
Joel answer: absolutely! here are some of the most common reasons we see firms fail for reasons other than poor investment performance:
1. irreconcilable differences among GPs/firm managers about investing or running the firm. These can be fatal and often surface at bad times during stress (like a period of poor performance or a large drawdown or market turbulence). The best guard against this is to have clear communication and expectations upfront, good relations amongst GPs, and clear mechanisms to handle disagreements.
2. poor quality LPs. This can also be fatal. LPs who are not aligned with the strategy and time horizon of the fund can wreak havoc. This could be a large LP who pulls their capital at a bad time, or a small or large LP who is just a cause of stress for the GP(s) during bad times. Ill-timed LP redemptions can impact the returns everyone else in the fund earns (for example by forcing the GP to build cash during a market panic in order to pay out a large redemption).
3. large mismatch between asset vs. liability liquidity (i.e. illiquid assets but very liquid fund withdrawal terms). This can become a self-fulfilling prophesy, where even the good LPs start to redeem because they don't want to be left holding the bag (ending up invested in a fund of very illiquid securities because the fund sold everything liquid to fund redemptions).
4. Insufficient operational infrastructure for strategies that are operationally complex. We're not thinking of our 10 stock, low portfolio turnover portfolios of liquid securities here. But if your strategy is complicated and/or highly regulated and/or may surface conflicts of interest that need to be managed, you need more infrastructure.
5. This is typically not fatal, but we certainly see people fail to adequately diligence key service providers and end up with low quality providers. A low quality/poorly matched service provider can be very disruptive and costly to part ways with.
MITIMCo Emerging Manager Office Hours Webinar
Hosted by the MIT Investment Management Company (MITIMCo) operations and legal team
To answer the questions of emerging manager stockpickers regarding operational, legal, accounting, and set-up topics for those looking to launch an investment business
9/22/2021 at 10:00 AM US ET
MITIMCo has backed several dozen emerging managers over the past ten years, and our operations and legal team has grown as we have sought to offer increasing operational help to these newer firms. For the first time, we are officially offering this help to emerging managers outside of MIT’s portfolio.
Who can attend? The seminar is open to the global public, but the content will be focused on operational, legal, and set-up topics for emerging managers investing in public securities worldwide. Participants will be afforded the ability to ask questions at the webinar but are encouraged to submit questions in advance when registering for the webinar. Emerging managers of other asset classes (venture capital, private equity, etc.) are welcome to attend, but again, the content will be tailored to public security stockpickers and may be of limited use to other types of managers.
What is the price of admission? There is no charge for this event – save your money for your GP co-invest! If you want to give back to MITIMCo for hosting this event, there is nothing more valuable to us than recommendations of high-quality investment firms – new, soon-to-be, or established – that we may not have heard of (it’s our job to find undiscovered gems of investment firms, but we miss plenty!). Recommendations can be sent to firstname.lastname@example.org – please include some information about the firm and why you recommend them.
MITIMCo attendees will include:
• MITIMCo Chief Financial Officer Marianthe Mewkill
• MITIMCo Global Investment Team attorneys Michael Whamond and Kim Gaulin
• MITIMCo Operations Team members Derek Wade, Nina Lavernia and Glenn Gans
• MITIMCo Global Investment Team member Joel Cohen
Further resources for emerging managers:
• For more information on MITIMCo’s emerging manager activities please visit www.mitimco.org/emerging-managers
• For more general resources for emerging manager stockpickers please visit https://emergingmanagers.org/
How to attend? This event will be held over Zoom. Please note that we have organized the webinar in a Q&A format answering the questions that have already been submitted in advance as of 9/15, but will also try to answer live questions as well if time permits.