When Esther and Marc Goodman took time off after departing Kenmar Group, the couple decided they wanted to help funds and managers grow their businesses.
The Goodmans started Conyers Group, and now serve as directors for some funds, work with emerging managers and are also seeking to add their expertise to 40-act funds.
Esther Goodman, who spoke with John Lothian News editor-in-chief Jim Kharouf, said the potential for emerging managers is very positive – discretionary or technical – as long as they can differentiate themselves from the pack.
“I think the future is very bright for small managers, niche players, who are doing something very different than what’s out there today,” she said. “Anything except a technical trend following system. I just don’t think there is a lot of room today for building a big business as a long-term trend trader.”
The challenge for emerging managers is to build a business that is as strong as possible – with the best organizational setup with compliance, sales and trading.
“I think everybody understands that not everybody is going to be incorporating industry best practices when it comes to operations,” Goodman said. “But you have to get as close as you can, given the amount of money you have under management. So that may mean you start with two or three people who do a little of everything. And as your business grows, you have to build that out.”
Another key mistake she sees emerging managers make is on the marketing side, or lack thereof.
“So many emerging managers are simply incapable of getting it right,” she said. “And it is so simple. You can create a great powerpoint presentation in no time at all, if you just take your time, line it all up, check the spelling and let someone review what you’ve written. “
The other key for emerging managers is learning how to make a pitch, she said. It’s one of the most challenging hurdles for new fund managers. Spelling out how your fund and strategy works is crucial to attracting institutional money, she said.
“You have got to know how to make a pitch,” she said. “If you can’t articulate verbally, your strategy, you might as well hang it up.”
Goodman said this is part of being up-front and transparent with your clients.
“In the long run, the more transparent you are the better because if they understand what you’re doing, when you lose money, they will be more forgiving,” he said.
In terms of management fees, Goodman says that 1-and-20 and 2-and-20 fee structures are under pressure from clients, which means that emerging managers will “have to be creative.”
“Maybe you want to negotiate when your incentive fee crystalizes, instead of quarterly maybe you only get paid annually,” she said. “Maybe each client pays their fee on an annual basis from when they first started so you have a little more diversification. You may want to think about clawbacks and you may want to think about hurdles.”