David Slifka: I’d say across categories there are certain characteristics that apply. Some people talk about the four Ps, which is trite, but it provides some structure, so people process philosophy and performance. You want people who have done before what they’re doing now. You don’t want people learning to shave on your face, as they say. It’s funny how somebody with a successful track record at one place can leave and all of a sudden, they’re an emerging manager. That’s never made sense to me, but one component of that also that’s not really captured in the four Ps is the underlying business.
That’s an area where many emerging managers struggle because just as CEOs are optimizing the profits from a business and are also capital allocators, some of the investment managers think of themselves primarily as capital allocators, but they’re also running a business and as investors, we certainly want to focus as much as possible on finding the best investors, but if those investors don’t have a stable, nailed down business operation that they’re functioning within, then there’s really no way for us to get comfortable that that would a fruitful relationship going forward. The good news is that that’s a pretty execution-oriented task, so it’s one that emerging managers probably enjoy tremendously, but is very much able to be ticked off.
In terms of process, it’s helpful for managers to think about how to describe what they do. We spoke a little earlier how many people, myself included, struggle to articulate exactly what it is they do all day, every day, but I think there’s a great deal of benefit to articulating it because once it’s been articulated, it helps one focus on the most critical and valuable components of that – again, back to time allocation – and to deemphasize the areas that might be less critical or less helpful. To emerging managers, I’d say have a clear sense of what it is you’re doing and why you’re doing it and how you can articulate, especially how it differs from the next ten people who are also picking stocks in a similar style.