At Granite Investment Advisors, we manage the assets of a variety of different client types, including institutions. With just under $1 billion in assets under management, many would consider us in the emerging manager class.
In the following post based on an interview and insight provided by Growth-based Investment Advisor and Industry Veteran, Bill Hutchens, we’ll walk through how we define “emerging managers,” how we work with institutions, and how we’ve positioned ourselves to provide unique value to the institutions we serve.
A Little Background: Emerging Managers Defined
Typically, emerging managers have between $500 million and $2 billion in total assets under management. The exact number may vary, and within that range, there can be many different—and specific—focuses, depending on the asset class.
At Granite Investment Advisors, we focus primarily on investing in companies that follow Environmental, Social, and Governance (ESG) practices, which is a core growth area we’ve been managing for a long time. We choose to focus on ESG because companies that generally follow these practices tend to also be smart businesses. Since we have a lot of history and experience with ESGs, it puts us in an ideal position to support institutions who are now looking for managers in that ESG space.
Working With Institutions
When we talk about institutions, we define them as organizations that have multi-million or -billion dollar retirement plans and have a pool of money that they are looking to place money with many different managers in order to complete their investment objectives.
Large institutions oftentimes hire consultants to help them identify up-and-coming managers. The consultant might choose several different managers across all asset classes. Each emerging manager selected would be allocated a sum to manage. The consultant, working with the institution, will then monitor the emerging manager’s results.
This way, consultants are able to quickly assess and identify investment talent across the pool. If the emerging manager is successful in that space after a few years, they may graduate to the big leagues and get a larger piece of the pie to work with.
So institutions are really looking for investment talent that will help them maximize their investments.
The theory behind this is that smaller managers are under-recognized and that hidden talent is what these institutions want to tap into.
Another Piece of the Puzzle: Consultants
Consultants primary focus is finding the best investors for the institution they represent.
While an institution might work with a variety of consultants, one of them would deal with the emerging manager markets specifically. There are maybe half a dozen of these consultants in the country, and they serve the needs of larger institutions who are looking to put money into emerging managers.
That particular consultant is the kind an emerging manager like Granite would want to familiarize themselves with. One would make sure that they’re in the consultant’s database and that they’re familiar with each other. Emerging managers would look to meet with these consultants on a regular basis, typically once a year, to confirm that if a search comes up that they qualify for, they’ll get involved in it.
For example, we recently attended the TRS Emerging Managers Conference, where emerging managers gather to talk about topics in the investment space, and the consultants come as well. It was important for us to connect with a number of the consultants who are seeking an emerging manager specializing in a particular area.
For example, if a consultant was looking for a growth manager who’s also an ESG manager, Granite Investment Advisors would be ideal.
Again, consultants use databases as their main source of information, so Granite Investment Advisors have to make sure that we update the different databases with our performance results often.
eVestment is one popular database which a lot of consultants use. It’s an online database that maintains all of an advisor’s vital statistics; everything about their firm and products, all of their return history, as well as very detailed characteristic about the portfolio.
For example here, I’ll use the state of New York. As an institution, the state would go to their consultant and say, “We’re allocating a billion dollars. Can you go find us 20 emerging managers for that?”
The consultants will then go out and search the investor database to find a few managers that meet the state of New York’s criteria.
These criteria may be growth or value, small capital, large-cap, or maybe ESG or non-ESG. Whatever that criteria is, they refine the search until they find exactly the advisor they’re looking for.
What Makes a Good Emerging Manager
Beyond the type of specialty an advisor or manager has, there are a few additional things consultants are looking for. While overall investment returns are important, it goes deeper than that.
Consultants will often ask an advisor or manager if they have good corporate governance and if they have good compliance within their organization. They’ll also consider how well the advisor or manager has done over the long term, if they have a good structure, and if they’re employee-owned.
On top of this, consultants need to consider an investor’s track record of returns. Do they have a disciplined investment process that adds value for security selection? Do they have a seasoned group of investment professionals that have been around, seen bear markets, seen bull markets?
These are all important factors to consider when looking to engage an emerging manager.
Why Choose An Emerging Manager
So we’ve covered what an emerging manager is, how they’re hired, and what makes a good one.
But why should institutions care? What makes hiring an emerging manager so appealing, and the best choice for a company?
Typically emerging managers are smaller firms—they have less bureaucracy—they are often employee-owned, and they’re more focused on their clients than larger investment manager.
When combined, a less bureaucratic hierarchy and more nimble investment team can provide better client service and positively impact performance if done successfully, where larger managers can sometimes be “fat and happy”, and content staying where they are.
At Granite Investment Advisors, our size is just right for an emerging manager— we sit right under $1 billion. So we’re big enough that we have good structure, good governance, and a good investment committee. We are also small enough to have a disciplined but nimble investment process, and we have a unique long-term track record in the ESG space, which not many investors do.
We care about our clients—from the largest to the smallest—and have the time and knowledge to find them the best investment opportunities.
If you’re looking for more insight into the benefits of working with an emerging manager, or guidance on investing and wealth management, we’d love to help. Give us a call at 603-226-6600 or just reach out.