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New Managers October 2012

Focus - Why do emerging managers fail?

Why do emerging managers fail?

Why do emerging managers fail? The simple answer would be it is because they fail to raise assets to a level that supports their business. And this failure, according to Autumn Capital, usually falls into one of three categories, namely (1) capital mistakes, (2) business mistakes and (3) strategy mistakes.

Capital mistakes relate to the process of raising capital and managing investors, or to the capitalisation of the management company. Business mistakes relate to the actual business of running a hedge fund management company. And strategy mistakes relate to the investment activity of the fund that the manager is running.

Autumn Capital Partners is a London-based investment consultancy firm founded in 2009, which currently advises hedge funds and institutions; it has a focus on emerging products and advises investors on early-stage hedge fund investments.

Top ten reasons for failure

Autumn's partners have recently drawn a list of the top ten reasons why emerging managers fail - and here they are:

  • Under-estimating the challenges
  • Lack of clear definable alpha
  • Inability to communicate
  • Wrong team
  • Wrong time
  • Under-investment
  • Assuming that all investors are equal
  • Lack of transparency
  • Greed
  • Fear
  •  

    The overwhelming majority of emerging managers will be loss-making businesses in the first three yeas of their existence, concludes Autumn Capital's presentation on the top ten reasons for failure. And some of the typical reasons for failure are not curable. But the good news is, many of those mistakes can be avoided. ......................

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    This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
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