What do endowments look for in emerging fund managers?
Short answer
Endowments want a manager who can win over a group, not just one person. In my experience that means a clear investment thesis, honest reporting and alignment with investors. You also need to get past the investment consultant, who often shapes the decision. No two endowments work the same way, so ask each one how it makes decisions.
Most emerging managers pitch an endowment the way they would pitch one wealthy individual. That is the first mistake. An endowment usually decides as a group, and the group often has an adviser sitting next to it.
The committee and the consultant decide before you do
Endowments range from a small local fund in your own city to a very well-known endowment with over a billion dollars. Either way, I tell managers to expect more than one decision maker.
"You really are sometimes going to be dealing with a committee decision. You're going to be dealing with multiple people that need to buy in on it."
Many endowments also work with an institutional investment consultant. Some consultants hold a discretionary mandate and make the calls. Others are non-discretionary and only give opinions, while the endowment makes the final decision. In both cases I want you on the consultant's good list. A consultant who likes working with you can be a useful ally over time.
This clip walks through the five types of hedge fund investors, including how endowments and their consultants make decisions.
Summary and key takeaways from this video
A thesis you can say in plain words
A committee cannot back what it cannot explain to others. So you need a clear investment thesis. What will you do with the money, and what are you best at? I hear from partners in our world that some fund managers may not have a written thesis at all. They can chase new ideas and drift outside their area of expertise, which can raise the risk of losses.
Staying in your line also tells you who your investors are. Your thesis points to the investor profile that fits it.
A wealth management professional explains why emerging managers need a clear thesis and a focused value proposition.
Summary and key takeaways from this video
Transparency and alignment after the check clears
One comment I hear again and again from family offices and institutional LPs is unhappiness with a lack of transparency from fund managers. They say it most about the latest wave of emerging managers. Reporting is part of the pitch, not an afterthought.
The other word that comes up is alignment. That means alignment on strategy, on the return you are targeting and on how value gets created. Investors want to understand what is happening in the fund and see issues coming before they arrive.
A panelist at one of our events describes what LPs say about transparency and why alignment matters.
What I would do before approaching one
Do not assume an endowment will wait for a perfect fund. Ask how its process works, who sits on the committee and whether a consultant is involved. Then build your materials for that group. Many managers talk to a securities attorney about fund terms, minimums and structure before they approach investors.
From the Family Office Club stage
One thing I would add is that endowments, like most institutional investors, like to see momentum. I have heard it said that they would rather see you fill a smaller fund than keep chasing a bigger one, and then watch how your earlier vehicles performed over time. Relationships matter too. I have seen an investor back a new manager with equity, stay in touch for a couple of years, then help seed the fund and come back for the next one and the one after that.
"People like to see momentum. They'd rather see you fill a smaller fund than keep chasing another fund, and see how those different ventures performed over time."
"Paul talked about how he provided $100 million of equity to a new fund manager over time. He got to know them and kept in touch, and then a couple of years later he helped seed his fund, and they invested in his next fund and the one after that."
On the record
- Endowment funds can be a small local fund in your own city or a well-known fund with over a billion dollars.
- An institutional investment consultant to an endowment may hold a discretionary mandate or may only give non-discretionary opinions.
- Family offices and institutional LPs have said they are unhappy with the lack of transparency from the latest tranche of emerging fund managers.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 5 Types of Hedge Fund Investors, Panel Discussion: Tech, Due Diligence, and Investment Strategies at The Family Office Club Event, Why Emerging Fund Managers Struggle to Raise Capital | Wealth Management & Investor Shifts. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fund terms, investor eligibility rules and offering documents. Do not use AI to write your own legal agreements.
Your next steps
- Write a one-page investment thesis that names what you do best.
- Find out whether the endowment uses a consultant and whether that consultant is discretionary.
- Build a simple reporting package that shows how you will keep investors informed.
- Prepare answers a whole committee can follow, not only one champion.
- Many managers talk to a securities attorney about their fund documents and outreach.
People also ask
Do endowments invest in hedge funds?
Yes, endowments are one of the five investor types I list for hedge funds, along with family offices, high net worth investors, pension funds and fund of funds. They range from small local funds to billion dollar ones.
What is an investment consultant to an endowment?
It is an adviser who helps the endowment with its hedge fund investments. Some have a discretionary mandate and decide. Others give opinions while the endowment makes the final call.
Why do investors complain about emerging managers?
The most common complaint I have heard from family offices and institutional LPs is a lack of transparency. Clear reporting and aligned strategy help address it.
Related questions
- What is the minimum check size for institutional investors?There is no single minimum check size for institutional investors.
- How do institutions think about fund size and concentration limits?Institutions usually want to own a modest slice of any one fund and avoid putting too much into a single manager.
- How do sovereign wealth funds invest in private deals?Sovereign wealth funds sit among the institutions that write 10, 30, 50 or even 100 million dollar checks at a time.
- How do I get a meeting with a pension fund CIO?A pension fund CIO rarely decides alone.
Work through it with the data room checklist. See all institutional investors resources.