Venture capital is a type of private equity that focuses on investments in early-stage companies with high growth potential. Venture capitalists provide financing to help these companies get off the ground and grow. In return, they receive an ownership stake in the company. Investing in venture capital as an alternative asset can be a great way to get involved in cutting-edge businesses while also earning a high return on your investment.
Although big name funds often dominate the headlines with their huge size and huge investments, it is an industry secret that the best returns in venture capital have historically been produced by emerging managers (Funds 1 to 4) especially at the early stages of investing.
Data from Cambridge Associates shows that emerging manager firms are consistently among the top 10 performers in the asset class, accounting for 72% of the top returning firms between 2004–2016. That is just astonishing! And just look how that looks along with Fund III and IV 👇🏼
According to Pitchbook research “Nearly 18% of first-time funds nab an internal rate of return (IRR) of 25% while later funds only exceed that number about 12% of the time”.
When it comes to investing in alternative assets – private markets and venture capital, there is always a risk associated with investing in new or upcoming managers. These managers lack the track record that more established firms have, which can make some investors hesitant to invest with them. However, there are several reasons other than just the best performance in the category, why emerging managers should be on your radar. Let’s take a look at a few of them.
1. Lower Fees
One of the main advantages of investing with an emerging alternatives manager is that they typically charge lower fees than their more established counterparts. This is because they are typically looking to build up their AUM (assets under management) and expand their investor base, so they are willing to negotiate on fees in order to attract new investors.
2. More responsive to feedback
Another advantage of investing with emerging managers in alternative assets is that they are often more responsive to feedback from their investors. This is because they are still in the process of trying to prove themselves and build up their reputation, so they are more likely to take investor feedback into account when making decisions about how to run their business.
3. More hands-on approach
Emerging managers also tend to take a more hands-on approach than established managers. This means that you, as an investor, will have more direct access to the decision-makers within the firm. This can be beneficial if you want to be more involved in the day-to-day operations of your investments.
One of the main reasons why some investors shy away from emerging managers in their alternative investments is because they lack a track record. But just because a manager doesn’t have a long history of performance doesn’t mean they’re not worth considering. In fact, in many cases, it may actually work in your favour. For example, an emerging manager who lacks a long track record is often more hungry and motivated to prove themselves, which can lead to better performance. Additionally, they may be more nimble and adaptable than their more established counterparts, which can also lead to better performance.
Investing some of you alternative asset allocation in emerging managers comes with its own set of risks, but there are several potential rewards as well. If you’re looking for new opportunities to grow your wealth, then you should definitely be interested in emerging managers in private markets and venture capital. These firms offer investors a chance to get in on the ground floor of some of the most promising companies in the world. And while they don’t have the same track record as established firms, they often have unique insights into new and growing businesses. So if you’re willing to take a little bit of risk, investing in emerging managers could be a great way to earn a high return on your investment.
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