Launching and running a fund like an ETF involves two distinct and often conflicting skill sets. While many start as stock pickers who love research, a significant portion of their time is consumed by the business side: fundraising, investor relations, and compliance. Aspiring managers must be prepared for this dual role.
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A common mistake for emerging managers is pitching LPs solely on the potential for huge returns. Institutional LPs are often more concerned with how a fund's specific strategy, size, and focus align with their overall portfolio construction. Demonstrating a clear, disciplined strategy is more compelling than promising an 8x return.
Many fund managers approach capital raising by broadcasting their own "unique" story. However, the most successful ones operate like great listeners, first seeking to understand the specific needs and constraints of the Limited Partner (LP) and then aligning their value proposition accordingly.
A CEO's primary role differs fundamentally based on company type. In an asset-centric biotech, the CEO must act as a hands-on program manager, micromanaging execution. In a platform company, the CEO must be deeply embedded in the science to predict and leverage the technology's long-term trajectory.
Many managers focus solely on raising funds and making investments. Lior Susan emphasizes operating his firm, Eclipse, like any other company, obsessing over details like quarterly reports and AGMs. This business-first mindset is key to attracting top LPs, partners, and founders.
Many LPs focus solely on backing the 'best people.' However, a manager's chosen strategy and market (the 'neighborhood') is a more critical determinant of success. A brilliant manager playing a difficult game may underperform a good manager in a structurally advantaged area.
Limited Partners (LPs) value fund managers who are willing to listen and internalize market feedback, even if they ultimately follow their own strategy. This openness is a key positive signal, while a refusal to listen is a major red flag that often appears early in the relationship.
The CEO role is not a joyful or fun job; it's a high-pressure, problem-solving position. Founders who love their craft, like software engineering, often take the CEO title out of necessity to solve a larger problem and bring a vision to life, not because they desire the job itself.
At Vanguard, strong job performance alone is insufficient for career longevity. The company's culture, shaped by leaders like Jack Brennan, mandates that managers must also excel at developing and leading their people, making management skill a core requirement for success.
The transition from a C-suite operator managing thousands to an investor is jarring. New VCs must adapt from leading large teams to being individual contributors who write their own memos and do their own sourcing. This "scaling down" ability, not just prior success, predicts their success as an investor.
Instead of focusing on process, allocators should first ask managers fundamental questions like "What do you believe?" and "Why does this work?" to uncover their core investment philosophy. This simple test filters out the majority of firms that lack a deeply held, clearly articulated conviction about their edge.