Building the Ecosystem for Gender-Smart Diverse Fund Managers
Now is the time to write cheques to diverse asset managers. As we prepare for Capital Connect, a series of curated meetings between like-minded LPs and GPs, we speak to Bahiyah Yasmeen Robinson, Founding Director of VC Include and Capital Connect partner, for her insights into inclusive investing on both sides of the marketplace.
Tell us about some of the conversations you've had with LPs - how do you make the case for investing in diverse fund managers?
It’s been interesting and varied. I’ve learned over the years to look for signals about the commitment that an allocator has to diversity. For instance, when a LP says that they're interested in investing in diverse managers and then asks about the value proposition it actually creates a red flag; it shows that they don't understand that diversity drives higher returns and that there's a lot of data in the market that confirms this. There's an interesting duality of intent versus curiosity and we really want to move them from curiosity to investment. This is why VC Include exists: to screen LPs for their willingness and readiness to invest in potential alpha opportunities in new markets (who's actually ready to write cheques?) and to connect them with best in class fund managers (who happen to be racially and gender diverse).
You play an interesting intermediary role, with insight into both sides of the conversation. Could you tell us what you're hearing from both LPs and GPs at the moment, and where the similarities and disconnects are?
VC Include was created in 2018 because there was no centralised advocate for BIPOC and women-led funds in the venture capital and impact space. To convene and actually create an ecosystem of both GPs and LPs that share the same common vision and a common goal, which is to identify and invest in the next generation of innovators to drive both returns and positive social impact. The market is artificially restricted: 1% of diverse managers in the alternative asset management space? It's just statistically impossible that the number is that low. Those are data points, not feelings or opinions.
In these last two years, because of both COVID and the civil unrest in the US and abroad, there's been an avalanche of support and new funds. This creates an opportunity, but more than ever we need to hold to our pillars of integrity and screen managers and LPs for that intentionality and ability to invest.
“The market is artificially restricted: 1% of diverse managers in the alternative asset management space? It’s just statistically impossible”
In response to this, VC Include has partnered with a number of values aligned foundations and family offices to support us in building out an infrastructure that will support fund managers across the lifecycle of their funds. I’m proud that we just launched the VCI Fellowship for BIPOC Fund I Managers.
What are you hearing from some of those fund managers beyond this artificial barrier, about what their challenges are at the moment?
Fund managers fall into three groups: operators and/or incubator ecosystem builders that have seen such opportunity in terms of investable companies but lack the capital, and there's a gap in knowledge there. We support a lot of those first time managers to upskill so that they're able to manage their fund over its lifecycle and potentially grow.
In terms of the GP landscape, we're also seeing folks that have already raised one $10-$30M fund, they've got top quartile returns, but they're having a hard time bridging the gap [to $50M] and extending their LP base. For the more sophisticated anchors or even institutional LPs, the challenge is showing that they're differentiated beyond those institutional investors’ existing investments. There's some tension on the GP side around how to differentiate themselves, and the other things they can do in terms of providing value to the ecosystem.
“There’s some tension on the GP side around how to differentiate themselves, and the other things they can do in terms of providing value to the ecosystem”
The third group are the fund threes and fund fours. They're a very small percentage of the diverse manager pool.
On the LP side, there are three types of LPs. LPs that don't care about diversity and are not going to make investments. That's fine - we'd rather them just say they don't care instead of saying that they do, and not make the investment. Then there's LPs with a mandate from their trustees or from their board to expand diversity in their portfolio. But a lot of times fiduciaries aren't always convinced by the business case, or have some bias. That is where we work to change hearts and minds over time.
And then there’s the LPs that already have 10 to 30% of their portfolio in diverse managers and want to increase that number, but are really overwhelmed with the amount of product in the marketplace.
Are there any success stories you can share of fund managers who've successfully built relationships with institutions?
Well, I'm not going to give you their secret sauce. But I can give three examples of managers - fund one, and fund twos - that have done a really good job of building institutional investor relationships: Ulu Ventures by Miriam Rivera, Darryn Dodson's Illumen Capital, and Kim Folsom, Founders First Capital.
Tell us a bit more about what you're working on at the moment, and how has that been affected by recent events?
COVID-19 and the civil unrest have actually created space for VC Include to grow in some really meaningful and thoughtful ways. We're excited to use this time to work with the managers and the LPs that are already in our network, and really shape the intention around investing in an inclusive way. We've been able to have a lot of closed door discussions on both sides of the marketplace with global leaders in the investment industry, to start to shift their perspective.
VC Include is building infrastructure for diverse managers to thrive. We'll be launching our first time manager program in 2021, expanding the platform of fund twos and fund threes throughout the lifecycle so we can support them to grow, and we’re also exploring opportunities to invest directly into those funds over the next 10 years. We’re also excited to partner with Gender Smart for the Capital Connect initiative to showcase gender lens funds globally. 2021 will be an exciting year for us!