Many of the best boutique investors in the world are faced with the same dilemma— a dilemma that the novelist Joseph Heller once described as a Catch-22, defined as “a difficult situation from which there is no escape due to mutually conflicting or dependent conditions.”
This boutique dilemma can be characterized thus: they need assets under management (AUM) to scale, yet their scaling ability is limited by their AUM. To be precise, they need to expand their distribution footprint to increase their AUM, but they need an improved AUM to expand their distribution footprint. We will refer to this as “The Boutique Catch-22.”
Even the best boutiques— like our newest affiliate at Easterly Investment Partners, the value investing team from Snow Capital Management— can face a sizable challenge in The Boutique Catch-22. These firms may report strong returns within their product category, like Snow, yet remain low profile due to their relatively small capitalization and consequently limited distribution team.
At Easterly, we are able to not only empower our affiliate partners to solve The Boutique Catch-22, but empower them to thrive and outshine the competition. We provide boutiques with an incredibly talented and experienced team of distribution professionals that have collectively raised hundreds of billions of dollars. Further, we are able to assure our affiliate partners that we are empathetic to their needs and we are able to begin meeting their distribution and operational challenges as soon as possible.
In order to ensure that our distribution and operational teams will optimize their success, we at Easterly select only the most promising boutique partners. We also only select those that we believe would be complementary to our portfolio. Likewise, we hold a conviction that Snow’s value strategy is a necessary complement to our growing suite of product offerings at Easterly Investment Partners.
Consequently, we are honored to welcome our newest affiliate, the former Snow Capital, into the Easterly family. We are proud to share how Snow’s partnership with Easterly was able to empower both firms to solve The Boutique Catch-22.
The Boutique Dilemma: Great Performance with Low Distribution Capacity
Snow Capital joined Easterly as a leader in the boutique value investing sector, boasting a 25+ year track record with strong performance over 1,3,5 and 10-year periods. Snow regularly reported results in the top decile of value managers. They have enjoyed a tenure as leading performers in boutique value investing.
Yet, with a boutique-scale $1.6 billion in AUM and a sales team of only three, they remained low profile to both potential LPs and a tight talent market.
Given Snow’s team of eight focused predominantly on research to deliver its strong returns, they also had limited capacity for many of the other functions necessary to running a firm— technology, PR, research access, HR, compliance, accounting and other capabilities among them. Further, their AUM limited their ability to perform many of these functions as well as their larger competitors and diverted the attention of their executive team away from core portfolio decision-making.
The core capability that Snow found most critical to scale was distribution. A small distribution team limited their ability to raise more funds and expand their capabilities. Additionally, they felt that their core competency as a firm was investing, not selling.
Snow may have had product strong performance, but they didn’t yet have the resources necessary to fundraise at scale or undertake a PR campaign.
Snow’s leadership took a step back to be thoughtful about their needs in a partner. They felt that attracting and investing in an in-house sales team would be too challenging—selling value alone, without any complementary growth strategies, as part of a boutique organization, may be challenging for even the best and most seasoned sales executives. The Boutique Catch-22 fundamentally limited their growth abilities.
Enter Easterly: Helping Talented Boutiques Prosper
After exploring options, Snow decided that the most fruitful path forward would be to find a partner that could help them solve The Boutique Catch-22 and take their business to the next level. They began investigating different types of partnerships with a variety of potential affiliate partners.
Snow’s leadership was seeking to find a partner that would be an excellent fit on a number of different levels— they would be philosophically aligned and culturally aligned, exhibit an excellent track record, provide a high degree of both autonomy and a continued high share of the profits of the firm and perhaps most importantly, solve Snow’s distribution and capabilities issues.
They began meeting with a number of potential partners. Each was a mix— some offered excellent terms but didn’t have the best track record, others were well-established but didn’t allow much autonomy. Eventually, Snow came into contact with Darrell and Mike at Easterly. They believed they may have finally found a good match.
Easterly, much to Snow’s happy surprise, possessed a number of qualities that they found outstanding. These were:
- Seasoned and widely expanded distribution team. Easterly could boost Snow’s team of three by nineteen experienced and accomplished distribution professionals in both sales and marketing, covering both retail and institutional client bases.
- Excellent track record. Darrell and Mike alone have over 53 years of collective experience. Darrell helped recruit over 30 affiliates and bring in hundreds of billions of dollars to AMG over a ten-year period, while Mike has worked as an accomplished distribution leader at Kennedy Wilson, Blackstone, and other firms. They lead a well-seasoned distribution team that has collectively raised many billions.
- Aligned distribution strategy and vision. Easterly’s approach of selling Snow to potential investors as part of a broader set of offerings would allow Snow to have access to a far wider range of potential investors than Snow would be able to attract on their own.
- High degree of autonomy. Easterly provides their affiliates a high degree of autonomy— it is almost as if they were still independent. Snow’s executive team would later report that they would have zero pushback on stock selection and very little additional pressure to perform.
- High degree of profit sharing. Easterly offered Snow a high degree of profit-sharing, allowing the firm and its leadership to continue to reward and entice their employees.
- Publicity. Easterly’s PR department is able to provide its affiliates with spots on major industry outlets, including the Wall Street Journal and Bloomberg.
- Philosophical fit. Easterly and Snow both shared a belief in the value investing paradigm. Further, Easterly believed that Snow’s value strategy was an effective complement for its broader portfolio at Easterly Investment Partners, and Snow agreed that its strategy was well-suited as a participant in a larger suite of product offerings.
- Cultural fit. As a boutique former family office, Snow had an informal and familial culture that made the firm a pleasant and desirable place to work. Easterly, also an informal and familial office, was an appropriate cultural match for Snow. Easterly is also not yet too large— fitting well with the tight-knit culture of Snow.
- Technology access. Easterly’s IT team offered access to state-of-the-art technology and systems. They could help Snow to be as efficient as their most capitalized competition.
- Research access. Easterly would provide Snow with broader access to sell-side research, supplementing the team’s robust internal research process.
- HR, compliance, and other capabilities. Easterly’s operational platform promised to help offload many of Snow’s non-investing responsibilities. Easterly allowed Snow to focus on doing more of what they do best.
In sum— Snow’s leadership felt that they believed in partnering with Easterly. They understood that Easterly was offering an excellent platform for its further success. Over a period of several months, Easterly and Snow began a transaction and investment process that would fold Snow into the Easterly family of affiliate firms. On May 18, 2021, Easterly and Snow announced their partnership. On July 1st, 2021, Easterly and Snow Capital finalized their agreement. Snow Capital would soon become Easterly Investment Partners.
The Beginnings of Partnership: A Welcome Start
Snow Capital, now Easterly Investment Partners, would begin its partnership with Easterly with a new Easterly-appointed team member— an HR representative. Team members at Snow report that the HR representative helped smooth the transition and provide services for Snow that made the process as seamless as possible. They would also gain access to a larger amount of sell-side research.
Over the course of the next year, portfolio managers at the former Snow Capital began to appear with some regularity on Bloomberg TV or in the Wall Street Journal, among other outlets. The portfolio managers of the former Snow Capital are beginning to become recognized voices within the industry.
Richard Snow, the founder of Snow Capital and current co-CIO of Easterly Investment Partners, remarked that the firm’s ability to focus less on HR, compliance, accounting and other responsibilities has allowed his team to focus much more on doing what they are best at — crafting world-class value investing portfolios.
While our newest affiliate has not yet increased their AUM, they are now operating with the capabilities of a higher AUM asset manager— particularly with respect to their distribution team of 19+. Given that sales cycles are long within the industry, both firms expect new AUM to enter Easterly Investment Partners within 1-3 years of repositioning its products.
However, significant progress is being made. Many doors are now opening for the team at Easterly Investment Partners that were not accessible to Snow Capital. The Easterly distribution team covers a far wider scope of potential investors. The team at the former Snow Capital was able to take a big step in the right direction. They are now solving their Boutique Catch-22 problem through their partnership with Easterly.
Today, Easterly Investment Partners believes that the timing was opportune. Given currently high levels of economic volatility, it helps to have a larger trusted partner to weather any storms. At Easterly, we look forward to developing and growing our new venture, Easterly Investment Partners, through all market conditions and levels of volatility.
These materials are for informational purposes only and shall not constitute an offer or the solicitation of an offer to enter into a securities or other form of transaction.
This presentation may contain forward looking statements that are not historical facts but involve assumptions that are required for purposes of such hypothetical illustrations. No representation is made that all assumptions have been considered. These forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond Easterly’s control and all of which are based on beliefs and expectations about future events. Actual events are difficult to predict and are beyond the firm’s control. Actual events may be different, perhaps materially, from those assumed. Assumptions are based on information available as of the date hereof and Easterly assumes no responsibility to update based on a change in underlying assumptions or market conditions.
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Accordingly, all opinions and data are subject to change without notice and Easterly undertakes no obligations to update or correct any data or opinions, including its own opinions.