Emerging Managers - Where the Alpha Is

At Unwritten, we spend a lot of time with emerging managers in niches. Friends ask why we don’t just focus on more conventional deals and raising a mega-fund to put more dollars to work and earn stable asset management fees? All the household names in the industry are going bigger and bigger in their raises every year…

The answer is several fold.

The first part is obvious – becoming a household name that can raise a ton of money is really hard! Nearly impossible. Institutional capital is consolidating. The ol’ “No one gets fired for choosing Microsoft” is applied to fund managers.

“No one gets fired for investing with Blackstone” because allocators don’t get fired for picking a household name. They get fired for taking a risk that didn’t pan out. This is true even as returns for the big funds trend to average returns (on a good day!).

Second, size is actually our strength. We can do the deals that the big guys can’t. Deals with attractive fundamentals AND upside. When a concept proves itself at location 3 or 4, there’s still meaningful alpha to capture: new products, creative partnerships, operational enhancements.

Third might be the best part. Even before those bells and whistles, the real estate already underwrites to an attractive return, often higher than what the mega-funds produce in their best case scenarios.

Last, and the cherry on top, is “capital markets alpha.” Because these deals are either too small or too early in their life cycle, the big guys can’t play there… yet. Once the larger funds can, the capital spigots open and two things happen: 1) performance get compressed and 2) those who invested early should get some nice cap rate compression as part of their return.

The beauty of being small and in a new asset class is that you aren’t fighting with the same five mega managers to squeeze the last basis point of IRR out of an already low yielding asset. That gives us – and our partners – real pricing power as we pursue acquisitions.

Those are just a few reasons why we don’t want to be a trillion dollar asset manager.

We are excited about partnering with emerging operators early and building institutional-quality portfolios and scaling them to the point where larger capital partners can step in.

We capture outsized yield in the early stages and leave the squabbling over bps of IRR to the big boys.

If you’re an emerging manager looking for a strategic partner or an investor who wants to see tomorrow’s winners today, we’d love to hear from you.