This essay is written with emerging manager public markets stockpickers in mind — the advice and the offer below will be less applicable to those who do something else.
Update: I have received upwards of 100 responses, which fills out my allotted time to this project and then some. I am no longer able to respond to every comer, but feel free to send me materials on your firm if you think there might be a good fit, and I will take a look. If there is a good likelihood of fit, I’d be delighted to have a conversation.
If your goal is to generate exceptional returns over many decades, if you aspire to do something truly great, this essay is for you. You are the kind of person I love engaging with, and MITIMCo looks to partner with.
I have worked on the Global Investment Staff at MITIMCo, which manages MIT’s endowment and financial assets, for the past ten years. Our goal is to partner with exceptional investment firms worldwide, setting aside all rules of thumb or pre-defined constraints (like the silly rules about a minimum length of track record or AUM). We have become more and more active in backing newer managers, finding it one of the most productive things we do. Partnering with emerging manager* stockpickers is an area where I have spent a lot of my own time, in particular.
I am especially interested in helping new managers operating on less than $25 million of AUM. We have seen plenty of people start with as little as $5 million of AUM and compound to much greater amounts while picking up exceptional partners along the way. If I can give some assistance, or even just encouragement, to those looking to do the same, I am very happy to do that.
I have two offers of help:
· My answer, below, to one of the most common questions we get from emerging managers
· To be a sounding board to anyone who reaches out to me that I think I can help
First, over the years, many emerging managers have asked us what stops managers with seemingly all the right ingredients from achieving something great. My advice is very simple:
You should start with a completely blank sheet of paper and skeptically question (or better yet ignore!) any piece of received conventional wisdom about how to start and operate a fund.
For some reason, managers just starting out, who have the unique freedom of starting from a blank slate, instead anchor heavily to the conventional. Rather than asking what is best, they start with what they see others doing and use that as the starting point for their plans.
The dearth of genuine first-principles thinking in the investment industry is striking. The competitive intensity of the landscape is now so high, nearly 90 years after Ben Graham first published Security Analysis, that I don’t think it is possible to generate exceptional returns if you are doing what others do but just a little bit better.
We have observed that managers who took the time to start from a blank sheet of paper come up with innovative ways of aligning interests and investing in order to maximize the rate and duration of compounding. Starting from scratch takes a lot of work, but for many of the managers we back who are in their 20s or 30s, they can amortize that effort over 30–40 years.
Second, if you are starting a fund, and want to use me as a sounding board, feel free to email me at Joel_Cohen@mitimco.mit.edu. If you write a one-pager with 1) your goals for your fund and 2) what you are thinking in terms of strategy and structure to get there, I am happy to read it and spend 15 minutes on the phone giving you feedback. Feel free to include a few (max 3) of your most burning questions in writing, and I will try to answer them. I have not personally started a fund and do not plan to, but have seen plenty do it and have observed some patterns of success and failure. I would ask that you keep it to one page maximum, and also that you only reach out if you are firmly committed to starting a fund, or started one in the last few years. If you are thinking of “possibly someday” starting a fund, please don’t reach out until your plans are firmer. I will focus on responding to those who most closely fit the criteria outlined here — which is to say the people I think I am most able to help.
Global Investment Staff, MIT Investment Management Company
*We don’t particularly like the term emerging managers, which is a highly institutional phrase. What we mean is newer managers who are less established and less proven as investors. However, we haven’t yet come up with an equally pithy phrase to convey that!