March 27, 2025 - In today’s unpredictable economic environment, emerging asset managers face a unique set of challenges. Market volatility, rising interest rates, regulatory changes, and increasing investor scrutiny are testing the resilience of newer firms. While established players have the advantage of scale, brand recognition, and deep investor relationships, emerging managers must prove their value in a landscape that is both competitive and uncertain.

Here’s the reality: the best firms are forged in challenging times. Those who can adapt, differentiate, and execute with discipline will not only survive – they’ll thrive.

1. Raising capital in a risk-averse environment

One of the biggest hurdles for emerging managers is raising capital in a market where investors are becoming increasingly risk averse. With ongoing geopolitical tensions, economic uncertainty, and shifting monetary policies, institutional and high-net-worth investors are prioritizing stability over new opportunities.

Strategies for success:

• Demonstrate a clear edge: Emerging managers must clearly articulate their unique investment thesis, competitive advantage, and track record (even if based on prior experience at other firms). Investors don’t just back numbers – they back conviction. An emerging manager should also clearly discuss why their strategy makes sense now and what they see that others don’t.
• Focus on early adopters: Instead of chasing institutional money from day one, focus on family offices, high-net-worth individuals, and emerging manager platforms as they can provide crucial seed capital.
• Build trust through transparency: Proactive communication, robust reporting, and independent third-party validation can help establish credibility with potential investors.

2. Managing liquidity and risk in a volatile market

Market volatility can create liquidity challenges, especially for strategies that rely on leverage or less liquid assets. Emerging managers must ensure they have adequate risk controls in place to withstand unexpected market swings.

Strategies for success:

• Implement strong risk management: Robust stress testing, scenario analysis, and dynamic hedging strategies can help mitigate downside risks. It is also important that you have the right team with adequate experience in the industry.
• Diversify funding sources: Relying on a single prime broker or funding source can be risky. Managers should establish relationships with multiple liquidity providers.
• Maintain prudent leverage levels: Excessive leverage can amplify losses. Emerging managers should ensure their capital structure is resilient to market shocks.

3. Navigating an evolving regulatory landscape

Regulatory scrutiny is intensifying globally, with increased reporting requirements, ESG disclosures, and compliance expectations. For emerging managers, staying ahead of these evolving regulations can be resource intensive.

Strategies for success:

• Leverage technology for compliance: Automating regulatory reporting and compliance workflows can reduce costs and enhance accuracy.
• Engage experienced advisors: Partnering with compliance consultants, legal counsel, and third-party administrators can help ensure adherence to complex regulatory frameworks.
• Embed ESG considerations: Investors are demanding greater ESG integration. Managers who proactively incorporate ESG principles into their investment strategies will have a competitive advantage along with constant regulatory changes/ updates on required ESG transparency as well as reporting requirements.

4. Differentiating in a crowded market

With thousands of funds competing for investor attention, standing out is a significant challenge. Simply outperforming the market is no longer enough. Investors seek managers who can offer unique value propositions with a continuous and sustainable growth strategy.

Strategies for success:

• Develop a strong brand and narrative: A compelling origin story, thought leadership, and consistent messaging can help build credibility.
• Leverage data and analytics: Advanced analytics, machine learning, and alternative data sources can provide unique insights and a performance edge.
• Build a loyal investor base: Personalized investor relations, frequent updates, and customized reporting can help cultivate long-term relationships.

5. Scaling smart without burning out

Operational inefficiencies kill young firms. Running lean is fine, until it starts costing you deals, execution quality, or compliance missteps.

How to scale without breaking:

• Outsource wisely. Don’t waste time and money trying to build everything in-house. Fund administration, compliance, and IT can be handled externally.
• Invest in the right technology early on. Automate reporting, streamline operations, and reduce overhead. It’ll pay off as you grow.
• Build a team that buys into your vision. Talent retention is as crucial as talent acquisition. The best firms have strong cultures and clear paths for growth.

Play the long game

The truth is, being an emerging manager today is harder than it’s ever been. While the current market presents formidable challenges for emerging managers, those who navigate these obstacles strategically can build resilient and scalable businesses. By focusing on capital raising, risk management, regulatory compliance, differentiation, and operational efficiency, emerging managers can position themselves for long-term success.

Success won’t happen overnight, and the road will be filled with setbacks. But remember that every established giant was once in your shoes. What separates those who make it from those who don’t is the ability to adapt, stay disciplined, and play the long game.

For more information, contact Deepak Nair at dnair@citrincooperman.com.