The Ephemeral Life of an Emerging Fund Manager

The Ephemeral Life of an Emerging Fund Manager

J OEL S HULMAN

T he investment industry has been undergoing massive transforma- tion. Traditionally, members fol- lowed a predictable path from graduate school to portfolio manager. Wall Street firms would pluck fresh MBAs from leading business schools, such as Harvard, Wharton, or Chicago, and groom a lucky few for a privileged existence. Salaries and bonuses were not extraordinary by national standards, but they provided a stable, enviable career. This tranquil path no longer exists. It has been replaced by one filled with unpre- dictable change and heartache. Many still enjoy a fulfilling, perhaps even extraordinary, career. But survival has been made more chal- lenging with market upheaval, technological advances, consolidation and excess talent. Members in the industry have been deprived of long-term job security. Some leave due to industry downturns while others depart due to poor performance. A few embark on their own journey as emerging managers. In order to survive, all investment professionals need to adapt to the changing environment or shift energies to an entrepreneurial paradigm. Otherwise they will perish. Those who blaze their own trail will discover an unforgiving environment replete with numerous haz- ards. Most don’t last very long or come close to reaching their potential. For many, their dream as an emerging manager will end after a harsh, ephemeral life.

RISE OF AN INDUSTRY

J OEL S HULMAN is founder and CIO of Entrepreneur Shares and a professor of entrepreneur- ship at Babson College in

As hedge funds became more pop- ular during the economic expansion of the 1990s, money management practices began to change. Investment professionals no longer settled for a mere six-f igure salary—they wanted billions! And with compensation structures providing management and per- formance fee percentages, managers could structure deals with enormous upside poten- tial while risking very little. Generous terms created an extraordinary return on invest- ment (ROI) situation. An epic bull market and quick access to fresh cash fueled a once- in-a-lifetime wealth-building opportunity. But the good times came to a halt with the 2008 market crash and Bernie Madoff ’s epic Ponzi scheme. Everything changed. Consumers blamed Wall Street for our nation’s woes, politicians created more regu- lation, and clients discovered problems with fund lockups and transparency. Some inves- tors pulled their money in waves without looking back. Others shifted to seemingly safer harbors in passive funds and govern- ment debt. The practice of money manage- ment was drastically changed—probably forever. These adjustments in the market affected money management f irms of all sizes, with the large ones making prominent news headlines. The effect on small, young,

Babson Park, MA. shulman@ershares.com

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