What are the risks associated with emerging managers?
Risks generally fall into three categories: investment risk, operational risk, and business risk. Investment risk is borne by all managers and their clients irrespective of size. Operational risk is generally greater for firms that are scarce on people, systems, and resources. Trading scandals in 2004 provide a reminder that this risk is not isolated to small investment management firms. Business risk refers to the chance or probability that a business enterprise will run out of capital before it generates enough revenue to support its costs, growth, and development. Business risk is generally more prevalent among smaller firms and argues for a manager-of-managers approach to secure the opportunity represented by emerging investment managers.
