Back to school: exploring an emerging manager incubator

New online programme aims to help emerging managers grow AUM to $250m
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CreativeCap Advisors has launched a new virtual programme – the Incubator – to help start-up managers grow their assets under management (AUM) to $250m by giving them guidance on the operational side of the fundraising process.

Tyra Jeffries, founder and CEO of Creative Cap Advisors explains to The Drawdown how it all came about: “The Incubator programme is the brain child of constant conversations we’d have with managers trying to figure out how they grow their firms or what the process looks like.”

Setting up a new fund is often the first entrepreneurial venture for a lot of managers in the programme. The Incubator acts in a similar way to an online school to give the managers –’the incubatees’ – the tools they need to grow to become successful businesses. CreativeCap wanted to create the Incubator because the managers they’ve seen “did have the portfolio management expertise but perhaps no experience of actually running a business,” says Jeffries, and in order for a firm to be successful, “they require the right advisors to help them build it.”

She adds, “There’s a lot of undiscovered talent within the emerging manager pool, which should be getting investor attention. A lot of the comments and issues managers have been facing is that they haven’t been able to position themselves well.

“Investors really don’t see the managers’ value, which leads to many managers having several meetings that lead to nowhere, not getting responses for a variety of reasons, which hinders them from growing at that level.”

The Incubator’s specialist advisors are able to help managers to break down barriers with LPs with regards to areas such as what a family office or institutional LP will or won’t look at, and what an investor requires when making a commitment.

Since January 2018, CreativeCap has been testing the Incubator on a focused group of 14 pre-selected fund managers. As those businesses are developing and their assets are growing thanks to the guidance of the operational help they’ve been given, the firm felt it was time to take the plunge and launch the Incubator on a much wider, global scale.

Jeffries says, “We are seeing many of the managers securing more first and second meetings with parties whose interest actually match with what they offer than before entering into this programme.”

She believes those within the Incubator have access to LPs which are specifically looking to invest in emerging managers, enabling them to widen their investor base network. By building their presence and operational side of business, the managers will in turn have a better chance of raising capital for their funds.

Virtual reality

The programme is predominantly online and split into two phases: Phase one – which the team is still perfecting – enables managers to access support within four key areas: marketing, investor relations, business development and business management.

This is achieved through one-on-one strategy structures and business advisory services to help across the four key disciplines and the active fundraising process which happens throughout. Each of the four areas is broken down into AUM segments, enabling the managers to see where they fit and the different stages of growth. Jeffries comments, “A segment would be a fund between $1-10m AUM, or $100-150m, etc. There are a lot of common issues within AUM levels, so we match the managers not only based upon AUM levels but also the other issues that managers face at any given time at that level”.

When a start-up fund manager enters the programme, and reaches a certain level of AUM and development, CreativeCap then presents them to the investor panel – a lot of whom are advisors, and able to offer advice for future LP conversations as their businesses grow.

They include CIOs, FoFs, CFOs and COOs of large asset managers, feeders and family offices. On the management side there are marketing specialists, IR specialists, business management and corporate strategists on hand to offer guidance.

After the managers reach the end of phase one, they move onto phase two which focuses more on sponsorship and partnerships within CreativeCap’s networks in the UK, the US, Hong Kong and Japan – key areas where the firm has partners and advisors who are interested in joining the programme itself. Phase two will continue to grow the Incubator as well as build partnerships with local governments looking at initiatives such as this.

Even though the programme is done predominantly online, Jeffries tells The Drawdown, “Incubatees can meet with the advisors in person at the discretion of both parties. We know many people are seeking in-person interactions and want to actively build their own network. We want to foster more than just asset growth we want to build a community.”

Risk reward

Incubatees pay a monthly fee to CreativeCap to maintain their membership access to the network of institutional advisors, guidance and tools to help them to build their businesses. The firm wanted to keep these initial prices of the programme around the same amount a manager would pay for a fund administrator.

These membership fees are dependent on whichever region the manager is based and there are additional fixed costs for specific areas such as marketing and DD.

The regional costs are shown below:

Jeffries explains, “This is the starting rate for membership. On the marketing and ODD side, it varies too much to give an exact price. We usually price things of that nature based upon the work that needs to go in. Every manager comes to us at different levels and ends up with pricing to reflect the level of work required. It can include mock ODD tests conducted by our ODD specialists, pitchbook and fact sheet development, media relations, roadshow preparations just to name a few. We will have a Scorecard for each incubatee, which is essentially a manager’s progress report so they can see where they are throughout the whole process.”

In terms of rewards for the Incubator programme itself, Jeffries added CreativeCap “does not take any equity percentage for the time being, and we do not allocate to managers – we only create opportunities to meet with investors who are interested in an emerging manager.”

Selection process

Managers must be a hedge fund, venture capital or private equity firm in order to be accepted into the Incubator programme, but they must have no more than five years of business. However, special consideration will be given to slightly older firms but only in cases where the advisors are able to offer value.

Start-ups must also be based in the US, Europe, Brazil or Asia Pacific – areas where CreativeCap has already established partners, clients and a client base, and sees opportunities. As the Incubator grows, Jeffries confirms the programme will be opening its doors to “Mexico and Canada and other smaller markets”.

While the Incubator is designed for emerging managers, the firm isn’t assigning any specific percentage of its membership allocations to diverse managers/funds, for example distressed or special situations sub-asset classes. The programme is staying open to all start-ups within the asset classes listed above.

“We consider [every application] on a case-by-case basis,” says Jeffries. “We’d rather [all managers] submit an application and have the conversation, rather than them not [apply] because they feel they won’t be able to be accepted into the programme.”

Neither is there a limit as to how many managers can participate in the Incubator at any one time because the firm’s network is constantly growing. “We’re already having more active conversations with advisors and potential advisor partners, so even though we’re about 50+ globally, we have networks to scale and increase that. If we get a huge number of managers into the programme we’ll be able to satisfy the demand through our networks and always have active conversations with people we think would be valuable to the incubatees,” she adds.

Fundraising throughout

Throughout phase one and two of the Incubator, managers are able to put their knowledge and skills into practice by meeting more investors and getting feedback on their particular fund, based on the investment presentation. If any area falls short, the VC uses the feedback to improve their performance to ensure successful conversations in the future enabling them to raise capital to increase their AUM to the targeted $250m.

The chart shows the full process from entry to exit of the Incubator programme:

Batteries not included

While CreativeCap is able to provide assistance within the four disciplines mentioned above, there are specific areas not yet covered by the Incubator.

For the time being, the programme doesn’t provide tax services, tech support or office space – logistically because it’s still a virtual school. However, Jeffries confirms the team is having conversations with companies that provide these services as well as other service providers focused on and/or actively working with emerging managers.

The idea of sponsorships and an office space component are still options for the future in phase two. “It’s a great opportunity for these fund managers to build networks of their peers” said Jeffries.

“We know the large asset management markets where we should target as far as office space such as London, NYC and Hong Kong but there are many interesting strategies surging in other parts of the world such as San Francisco, Milan, Amsterdam, Tokyo, Seoul, Shanghai, Stockholm, Sao Paolo and Paris. We want to take the time to properly make the assessment on the markets where we see the greatest concentration then move forward with the right office space partner” she added.

Post-grad

Managers do not graduate or exit the programme until they reach at least $250m AUM. While some may exit the Incubator quicker than others, the end goal for everyone is still the same.

And even after graduation, help is still available for some added support. “Any managers which mature out of the programme can take advantage of the more enterprise level services,” says Jeffries. “A lot of the larger funds we deal with are interested in more automation and database intelligence, so we’ll work with them on that level and extend their investor base from the $250m base target.”