Tulane, DuPont, Liberty Mutual seek, advise emerging managers

  • Big LPs sifting for small GPs
  • LPs cite more difficult access to established players
  • Emphasize track records; praise placement agents

Big limited partners from Tulane University, DuPont Co and Liberty Mutual said they’re planning more investments among emerging managers to seek superior returns, foster long-term relationships and get better access to general partners.

And the LPs offered solid advice to GPs who are just starting out and looking to get LPs’ attention.

Scott Gerdes, investment associate at Tulane, which manages about $2 billion, said his group looks for second or third funds in the sub-$500-million range in buyouts, venture capital, distressed, real estate and natural resources.

It’s harder to get into more established firms in the highly coveted lower-middle-market arena, he said.

Emerging managers’ value add

“We’re seeing that in the lower middle market, Fund IIIs or Fund IV of many managers have enough LPs for two or three times their fund sizes,” he said. “The value add” of emerging managers “is in getting access and building a relationship.”

Gerdes and other investing pros spoke July 19 on the panel “Following The Money: Who Are the New LPs Entering the EM Market, Corporate Pensions, Insurance Companies, Endowments, Foundations and More,” at Buyouts’ Emerging Manager Connect 2016 conference at the Harvard Club in Manhattan.

Gerdes said that newer GPs who are turned down the first time should hang in there — Tulane may invest in the next fund.

Brian Nobis, investment analyst at Liberty Mutual Investments, which manages about $5 billion, said the firm did its first Fund I investment in more than a decade in 2015 and it’s looking at others.

“We’re new to investing with emerging managers,” Nobis said. “If you want alpha, you really need to be on the smaller end. If you get in earlier with the funds and support them, there’s growth potential.”

Nobis tipped his hat to the University of Michigan doing a “fantastic job” in investing in early funds.

“They were willing to take a little more risk,” he said. “They continue to do a good job in that area.”

Do deals, ensure attribution

He advised new GPs to get their names out there by doing deals.

“If I see a name, I write it down and look at it, and if it’s interesting enough, I reach out” to the GP, he said.

It’s also important for younger firms to build up solid attribution — take firm and verifiable credit — for deals to show their track record.

“If they mention deals and they don’t have the attribution, we typically don’t go down the road with them,” he said.

Chris Pettia, senior portfolio specialist for private equity at DuPont Capital Management, which manages a roughly $14 billion pension fund, said the LP defines emerging managers as those running a Fund I or Fund II.

DuPont has seeded fundless sponsors as well, but it won’t invest with teams that haven’t worked together before, he said.

“With individuals that come together who never worked together, it never ends well,” he said.

The LPs said they frequently talk to other investors about younger firms. They don’t mind meeting with placement agents, which provide a useful service to investors and GPs.

Jason Lamin, founder and managing partner of Lenox Park, said his firm is working on a study of foundations and how they allocate to emerging managers, with a release date possible in about two months.

Action Item: Buyouts Emerging Managers Conference: http://bit.ly/29nLw8n

University of Louisville’s Luke Whitehead (left) fights for a loose ball with Tulane’s Waitari Marsh during their second-round game of the men’s Conference USA tournament at Freedom Hall in Louisville, Kentucky, on March 13, 2003. Photo courtesy Reuters/John Sommers II