Is there a world where investors can incorporate climate data in their investment mandates? Owen Woolcock and Rajeev Ranade, the co-founders of Climate Core Capital certainly think so. 

Combining traditional climate risk factors including flood, heat, fire, hurricane, and storm with unconventional readiness indicators to find low-risk and high-readiness markets shapes Climate Core Capital’s investment strategy. 

By thinking incongrously about environmental impacts such as tree canopy ratios and urban imperviousness, Climate Core Capital captures unique investment opportunities. 

“I'll give LPs a lot of credit in terms of how many of them have turned onto this notion of climate risk. It's kind of percolating around their institutions or their families. It may not be primetime, but it's sort of sitting in the back of their head,” Rajeev says.

In this episode, Owen and Rajeev discuss their evaluation of different characteristics for climate readiness, share insights on the ranking of various regions in America, and provide details about their selection process for development and operations partners in their investments.

When climate changes, everything changes. Other investors may commonly default their highest priorities to include economic factors first, but by doing so they miss an entire market of investment. By making their stand to bring climate factors to the forefront, Climate Core Capital not only assists in directing a struggling climate, but also discovers unique investment opportunities that would otherwise be overlooked. 

💡 Featured Guest 💡

Name: Owen Woolcock

What he does: Owen is a partner at Climate Core Capital. He has worked over 15 years in international environment agreements, real estate, and family office services. Owen was formerly the COO of the Central London flexible office group and Research Director for Commodity Futures Trading Commission (CFTC).

Organization: Climate Core Capital LLC

Connect: LinkedIn

Name: Rajeev Ranade

What he does: Rajeev is a partner at Climate Core Capital. Prior to joining the team, he was a Managing Director at RCX Capital Group, a tech-driven real estate investment and merchant bank. Rajeev was also the Founder of Source Central, a web platform connecting capital to real estate opportunities, which was acquired by RCX.

Organization: Climate Core Capital LLC

Connect: LinkedIn

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You are listening to Fund Flow, a podcast for emerging managers offering insights into the journey of new and aspiring fund managers seeking to have access in a crowded market. Tune in as McGuireWoods's partner and host, Jon Finger, is joined by guests ranging from first time fund managers to proven emerging managers, experienced LPs poised back emerging managers, and other key participants in the emerging manager ecosystem. Hear their real world perspectives and gain actionable tips to help inform your strategy and position yourself for a successful fund closing.

Welcome to Fund Flow, a podcast for emerging managers. I'm Jon Finger, and today I'm very excited to be joined by Owen and Raj, co-founders of Climate Core Capital. Owen, Raj, thanks so much for joining me today.

It's a pleasure.

Thank you.

What I'd like to do in the first part of our conversation is delve into the research that led to the founding of Climate Core Capital, as well as some insights around climate data and how it's a truly difficult challenge for investors to accommodate and incorporate within their investment mandates. And maybe when we start here, Owen, let's spend some time with you, and maybe tell the listeners more about yourself, Raj, your careers, and how the two of you met and led to the founding of Climate Core Capital.

Happy to John. As the audience will tell from my accent, I'm Australian. I was a diplomat in the Australian government through my 20s working on different international climate agreements and Antarctic treaty protocols. After a stint in business school, I went into real estate and family office services. But the burning kind of large global issues from my time in government stayed with me, and I had a chance to come back and do research at the Graduate School of Design at Harvard University here in Cambridge, Mass where I still live.

The work was really around what was going to happen to the built environment and specifically real estate prices when we could quantify climate risk better. That led to me working with some really world class faculty on a data set that 280 cities in the United States above 100,000 people, and plotted them for both their physical climate risk but also their climate readiness. And that's something that we'll probably delve into in future questions.

In terms of how Raj and I met, funnily enough, we actually met through our wives. Raj had been working in real estate capital markets for much of his career, and I was working in PropTech in Europe at the time. And just like one of those dinners where you get invited along, and your partner says to you, "Oh, you're going to love the husband you're sitting with," and it's almost never the case. Well, here we are three, four years on and partnering together in a large investment business.

That's great. I will tell you that is the first time I've heard that on Fund Flow. So I knew you guys were groundbreaking, but here we are. Well, that's fantastic. Let's talk about what led to establishing, I think it was in 2021, what led to establishing Climate Core Capital?

Yeah, I think when I talked about that dataset, if you think about a scale of just say zero to five, with five being a large high level of climate risk and 0.1 being the lowest level of physical climate risk that might exist in a location, some of the underlying data that we were fortunate to partner with showed that on a scale like that, if you took any market from say one to two, or two to three on this scale, it effectively meant there was a doubling of overall climate risk. And that led to a spectrum of all of America's cities.

We often get asked what is the worst market in our dataset? Right now when we combine physical climate risk and readiness, the dataset that we see the greatest risk in allocating a dollar is Naples, Florida, but the best market is somewhere like Ann Arbor, Michigan. Now intuitively to an American audience, it's probably understandable why one of those markets would be at one end of the spectrum and one at the other. A place like Ann Arbor, Michigan obviously has no sea level rise. It's not in a hurricane corridor. There's minimal wildfire risk. And even though they deal with fairly heavy winter storms, there is consistent precipitation.

So we started to think about this idea of risk and readiness, and if the audience just imagines a simple two by two. In one quadrant, you have places like Naples, Florida that are high risk and low readiness, and in the other quadrant you have low risk and high readiness in markets like Ann Arbor. So it became fairly intuitive to us that there were going to be a lot of participants in the financial market that wanted to participate in different ways around the climate repricing.

Another way to think about that is just a big climate short or a big climate long. A big climate short is actually a very difficult thing to execute. You have duration risk, you have assets responding on different time scales, and you rightly have the government intervening at numerous stages to backstop or bail out assets at risk because there are larger geopolitical or strategic reasons why places disrupted by climate hazard still need to be able to thrive and recover.

The big climate long is a different story. It was clear to us from the data that there were parts of the country that were growing that exhibited low risk and high readiness, but that had many different factors that led them to be a positive compounding experience in the years ahead. So it was going to make sense for more people to live in these locations than currently do. Growth was occurring in these markets for secular reasons unrelated to the climate. And the big climate long that Climate Core Capital identified was to aggregate high quality real estate assets in these markets.

That's great. Maybe talk a little bit more about your approach to identifying those lowest risk and highest readiness markets in the country for the fund to invest in.

Yeah. Well, and I think a simple way is to continue with the Ann Arbor analogy. So as we talked about when you think of risk and readiness as two different components, risk is really an aggregation of the science. So we are literate in the science, but we're by no means experts. So we take a group of different climate models showing different horizons between now and say 2040 to 2060, and that's a combination of flood, heat, fire, hurricane, storms and so forth.

Now the readiness is the part that perhaps other parts of the climate data world have not really thought as deeply about to this point. So when we talk about readiness, we're trying to quantify the extent to which any market in America is showing evidence of preemptive investment. Do they have natural advantages? Are there certain features or contours of the way that market operates, the industries, the characteristics and attributes there, that lend itself to being able to absorb, accommodate, resist, and thrive alongside both disaster hazards and slow onset climate change at the same time?

So when we think about that, if we think about it in terms of trying to find indicators of preemptive investment and preemptive defensiveness, that led to very obvious economic indicators like fiscal debt per resident, there's obvious things that we incorporate such as number of homes, buildings, vehicles in the 100 year floodplain. But then we started to think differently around things like tree canopy ratios, urban imperviousness, perhaps unconventional markers that every single city possesses, but perhaps conventional real estate analytics had never thought that deeply about trying to capture at scale.

So that has helped us to think differently about the capacity within which readiness might exist. And what we found was that there is a top quartile of markets in this country that exhibit very high readiness. They quite often exhibit low levels of risk. And again, to this idea of compounding that climate change is really a story of positive and negative compounding in both directions. If we could find ways to aggregate real estate assets in the locations where compounding was occurring in a positive sense, that was going to be something that other LPs, other investors further down the aggregation pipeline were going to be very interested in.

You touched on it a little bit. I'd like to get further into the core principles, tenants, guiding Climate Core Capital, and maybe talk in turn around the cornerstones of your investment model.

Yeah, sure. We spent a lot of time around the academic data when the data set was being built. So there are fantastic faculty out there in different parts of the country working on floodplain, disaster responsiveness from a GDP perspective, lots of different markers. As well as the different federal reserves in the country trying to do their own asset stress testing and experimentation of catastrophic and parametric bonds. All of this different work was going on around the financial system to try to think about creative ways to reprice and quantify climate risk.

And I think being exposed to these ideas early on, it became apparent to us that climate disasters were going to reshape the attractiveness of locations in time scales that are just very hard for real estate investors to respond to. It was going to make divestment difficult, it was going to make repositioning difficult, and there was no guarantee in the most exposed markets that buyers were going to be there in the same numbers that they had in the past. So that was one realization.

Another realization we had was that slow onset climate change, so when we talk about slow onset risk, we're thinking about extreme heat, water scarcity, sea level rise, the kind of mega droughts that we're seeing in the Colorado River at the moment. That these were going to lead to migration outflows that were probably going to be mostly visible in hindsight. So another simple way to think about that is there isn't going to be a survey filled out when someone leaves and becomes a climate migrant at the county line, and they say, "I left because of climate change." What's more likely is there's going to be school catchment rationalizations and grocery store closures and plants shutting down. Because very small levers of the financial system around the edges of what made an economy viable begin to change. Something that we try to press on investors in a first meeting is it doesn't take the big one, the big disaster in your market to reprice the assets. It simply takes the financial system recognizing the risk in a more systematic way.

And finally, I think things that added and played a large role in the early design of the investment model was buildings designed for climate resilience and high readiness were going to carry a premium. And they have not been built and capital has not been allocated to those assets at anywhere near the scale that the system requires. Another factor that feeds into that is we're probably heading into the first period of genuine energy price volatility that many of us have experienced in our lifetimes, and that is going to be a real consideration for landlords in the foreseeable future. So the extent to which you can have near net zero or DOE net zero ready or even Passive House buildings, we can talk about those terms in a moment, the extent to which those assets would perform in the future was really something that we didn't think was fully understood in the real estate orthodoxy.

And lastly, it really does take time to accumulate, to actually build the technical competency of some of the design and construction characteristics we're describing. This isn't as simple as what LEED certified silver, gold, and platinum offered. The types of attributes and locations of the very best buildings in the future are going to be very different to what we currently understand them to be. And that's going to be reflected both in insurance, in cost and availability of debt. We definitely see scenarios and we've started to observe them in early exposure markets where some locations are just experiencing a completely different insurance future compared to others.

So I guess how I would summarize that is we're heading towards a very different experience for landlords and tenants. And as we move into a post-COVID world, there's a greater focus on interior air quality. There is a greater focus on the kind of quality amenities that people are going to look for, both from a disruption, responsiveness, resilience, high quality airflow, sound. Many of these factors we just didn't see being captured in the way the best buildings are being valued now. And we thought that once we knew what we knew about where the best buildings should be, if we developed a technical competency to build them as well, that was going to match two very high points of competitive advantage together.

So you've talked some about it, but has this broader repricing of real estate started to happen? And if so, and I'm sure there's some, maybe talk about some more concrete examples of that and how that intersects with your focus for investing.

Certainly. There's a fabulous MIT paper that was just released in December, I would be happy to distribute it in the notes, by William Wheaton and the team there in the economics department. And they effectively took class A and class B offices in the Miami area, and split them out into sea level rise exposed locations and non sea-level rose exposed locations. They then tried to study rents and also transaction prices.

And there was a two-sided story that effectively unfolded with what they found. The first is that rents actually aren't moving that much at all. Tenants are not put off by being in a sea level rise exposed location. They're happy to still pay for the water views. And they cycle out in periods where, though they see marginal risk, it's not to the point where they don't still have a high willingness to pay for what we understand to be conventionally the best locations.

The story was very different on the landlord side. Landlords have begun to price it from a future's perspective. CapEx regulatory burdens, higher property taxes, higher insurance, and a restriction on mortgages, potentially contingent on dealing with different aspects of the climate risk of the specific site. And what the Wheaton research team effectively found was that two decades of class A office value have been wiped from that market purely in the last 24 to 36 months. Such has been the desire of landlords to get out of some of these high sea level rise exposed locations. So any gains made between the year 2000 and now have effectively disappeared.

A second piece of analysis was done by Rachel Meltzer at the New School, and that effectively looked at commercial establishments in Staten Island for the seven years after Hurricane Sandy. Her results were really quite shocking. It effectively showed that revenue levels that existed prior to Hurricane Sandy did not return even seven years after the storm if any of your block of small business establishments was touched by water during the storm. Such was the change in consumer activity, buying patterns, shopping routines that people just simply don't come back to those locations anymore.

And the last one I think worth sharing is some really scary stuff around depopulation from wildfire ravaged areas of California. So a location like Paradise that experienced the campfire in 2018, it was a population of 28,000 people on the morning of the fire. It's carrying population now is about 3,500. When you lose such a huge proportion of your population, it's these essential middle class jobs around nursing, teaching, fire, municipal services. When those middle wage bracket occupations don't see a logic to come back to the location, it's very difficult for the place to function. And we're continuing to observe this in terms of vocation in wildfire recovery areas, where the people are not moving back. And the people you need to make the place work are not moving back.

That's really helpful Owen, and I appreciate those insights. I want to, as this podcast is centered around the emerging manager struggles, observations, however you want to frame it, with the backdrop of how differentiated your fund is. I want to talk more now with Raj, and feel free to chime in Owen, but talk about the capital raising, the LP relationship journey in more detail. So Raj, maybe let's start talk about your background and the process of raising capital for a real estate emerging manager. And for examples, some of the strategies that you implemented to attract limited partners and family offices.

Yeah, sure. Happy to. And let me first apologize for the change in accent. I feel like your listeners just got a bait and switch on the listening pleasure of this thing. Yeah. So my background, I've had about a 15 year career in real estate investment management and capital markets. Started in Chicago doing capital placement and advisory services for GPs and large fund managers. My wife and I then moved to Singapore for five years where I worked for an Indian private equity real estate shop. And then kind of compelled by a lot of the frustration around how GPs and LPs connect and distribute information, I founded a small FinTech platform focused on connecting larger LPs to deals that fit their strategic needs. I ran that for about four or five years, and it was then merged into a US real estate capital markets firm called RCX Capital Group, which moved us to London. Where my focus was on, again, kind of advisory services, capital markets work, but also co-GP investing.

Owen and I met, we started kind of, particularly during the pandemic, knocking around the question of what climate change means for real estate investors in particular, not just kind of these more macro questions of what it means for the built environment or urban environments. And we started honing in on crafting the strategy that sort of seeks to answer that question. Meaning investors are in for a lot of changes when it comes to how real estate performs, how the allocation performs, and we sought to build a strategy that helps course correct for that, and allocate to locations and in a certain type of asset that helps mitigate the downsides of climate change in a real estate allocation, but also helps thrive alongside that.

So my background and career really led to luckily a strong understanding about how LPs operate, how the strata of LPs kind of differentiates between the smaller, maybe less sophisticated to the extremely large, more sophisticated. And I think that's something we've used to really structure our approach. We have a very differentiated strategy. We're very lucky in that. We're one of the only groups, if not the only group, talking about bringing climate risk and climate readiness to the forefront of an investment product.

So really it's about identifying investors who are open-minded to our approach and then meeting them where they are. Certain investors, whether it's conferences or thought leadership or direct engagements, they all operate in a different way. They all have their own processes. And unfortunately it doesn't scale. The classic saying about a family office is, once you've met a family office, you've met one family office. It's a lot of idiosyncratic methods, a lot of different ways they think about allocating, or they think about creating strategies.

So you really have to have an approach that's flexible while staying true to, at least for us, our core thesis. That's not something we'll ever sort of negotiate on. So yeah, that's kind of a little bit about how we approach it. But it is very much a kind of total war concept in terms of being out there all the time with our message, particularly given it's new. A lot of investors haven't digested this. We spend a lot of time on education, thought leadership, podcasts like this where we can share a story that investors may not have heard.

Absolutely. How do you identify, evaluate, and select the best in class multi-family housing operators and developers to allocate capital to?

Yeah, I think what makes our approach to identifying developer and operator partners that we want to build relationships, with by bringing climate to the forefront, number one, we're selecting into a smaller group of markets. So there's only a handful of markets that we really consider. And then within that, there's sort of a self-selection process because we really want to identify developers and operators at scale of multi-family who are aligned with our view. Meaning they're willing to take in considerations of climate risk and readiness at the submarket, street corner, longitude level in their own decision making and how they're considering assets or considering new projects.

So in building that relationship, and I think these are relationships, we want to position ourselves as a reliable long-term capital partner with these groups. We want to help them scale. We want them to benefit from our perspective and us to benefit from their expertise. So I think the filtering process really starts from just our thesis view on the groups we need to execute. How it grows from there, I think comes in a couple forms. Number one is a focus on, and Owen mentioned this, Passive House, which is a building certification. It's an extremely rigorous standard of sustainability within a building. It's something we prioritize. There are very few developers and operators in this country that can achieve the level of sustainability that Passive House delivers at scale, 50, 100 plus units. So again, some of these self-selecting criteria allow us to narrow in on groups that we want to build relationships with because they sort of align very directly with our thesis and our mission.

Sure. And with the backdrop of a real estate investment firm, how do you plan to adapt and evolve your investment strategy in response to and recognition of ongoing disruptions, changes in the broader real estate market?

Yeah, good question. Zooming out, if you asked me kind of a similar question of how we were going to navigate nine to 12 months ago, the focus would have been on typically development of multifamily. There would've been really no movement in the market negatively in terms of volume or in terms of velocity. That changed dramatically between summer and now. So most investors are less comfortable with development or select development. And of course most groups across real estate, not just multifamily, not just in our markets, are typically on the sidelines waiting for some sort of stabilization or price discovery or kind of bid ask spreads getting closer together.

How we navigate that is really by getting back to our core principles and the things we do really well. So we look at identifying creative opportunities to work with our operating development partners. If we think it's hard for us, it's very hard for them at the deal level, particularly if they have upcoming financings or different time sensitive issues coming up. We think that's really important in terms of helping them navigate this as well. I'm not going to prognosticate and join the legions of people who get it wrong on what The Fed is going to do, or where we're going in a macro perspective.

But I think from a multifamily sector focus, we're also paying a lot of attention to where things are moving, but also gauging sentiment on the ground from other LPs, from operating and development partners, from lenders. Because as things shift, they could shift quickly, and it's really about preparing ourselves to be a part of that market moment when it shifts. And whether it shifts in a way which is volume comes back, transactions come back, and we're just participating in that, there's more opportunities, things unlock a bit. Or if there's a moment of distress or things accelerate dramatically. It's really about putting yourself in a position to quickly go after that and engaging LPs, right? So the worst time to engage in LP is when you need money. The best time is along the way, building that relationship, demonstrating your expertise, continuing to educate them and provide them with insight as they may be keeping their capital on the sideline. We want to be prepared, as things open up, as things thaw a little bit, for our strategy to be sort of front and center in their consideration.

One more question, Raj, before we turn more towards the LP side, how does your emphasis on climate intelligence impact your due diligence process and the overall risk management equation for the fund?

Yeah, I think I'd start by saying risk is about pricing uncertainty. And we're very comfortable with appreciating the limitations of our data. We're very comfortable with understanding that climate risk, climate data is still in early stages in its development. And so we approach risk management from the view that there are limits to what we can know, but we can appreciate the severity of it or bring it to the forefront, as kind of I described before.

So when it comes to bringing in climate intelligence, we have to blend that with other considerations. Meaning if we just took climate intelligence on its own, meaning risk readiness data, identifying which markets are going to be least susceptible to the changes from the climate, in addition to whether or not they're prepared for it, we'd land in places a lot which don't exhibit economic demographic anchors of capital, economic demographic growth anchors of capital, the types of things you need to have a compelling real estate investment.

So when we think about the emphasis on climate intelligence, our due diligence risk, it's really about just bringing it to the forefront. And then after that, executing along a very traditional lens. So we were with an investor once, and they heard our process, we talked to them about our filtering process. So starting from, okay, climate risk readiness, then thinking about the developer operator relationship, then thinking about the economic conditions, supply, demand, liquidity, availability, and cost of capital.

And they sort of said the difference is that, "When we look at deals," meaning this investor, "we're thinking first about the economic situation." And we kind of took that in, and we said, "We're doing the same thing, you just don't know it yet." Meaning the way we view climate risk is that, as the famous Margaret Atwood quote is, "It's not climate change, it's everything change." As in if you're viewing things solely through an economic lens, that might be income data, it might be GDP data, whatever it might be, you're missing a huge factor that's going to play out in the cycles ahead. So yeah, we bring it to the forefront. It really colors everything we do. It's not that we're ignoring the traditional methods of due diligence or risk analysis, it's that we're putting them in the context behind a more ubiquitous risk.

Understood. What were the most important considerations for you and Owen when choosing LPs to pursue a partnership with?

So the first thing I'd say is we're an emerging manager, so you can only be so picky. And we'll be honest about that. That said, I think as we advance conversations with LPs, you begin to understand their level of shared vision. These are long-term relationships. As much as they are doing due diligence on us to gauge whether we would be a good strategic partner for them, we're in an potentially eight plus year relationship with them as well. And making sure they understand what we're doing, that they fully grasp both the mission and the alignment is really important.

It's also a really challenging new space. Not all LPs really want to dig into something this novel or cutting edge, however you want to describe it. And that's also very important. That the LPs need to understand that they are sort of at the forefront of something that is happening all around us. The repricing is starting. You're starting to see market participants and financial participants take climate risk into account, which is accelerating the repricing. But it's very important that they kind of accept that because otherwise it's hard for them to buy your differentiation.

And what were some of the most common reasons for rejection? What were some of the reasons that you saw LPs hesitant-

There's so many, Jon. This is going to be a long podcast.

We're all used to it, right? Well, talk about the reasons that you saw LPs hesitating to invest in a first time fund.

Some of the classic ones, right? Fundamentally, many larger LPs just don't do first time funds. They have the luxury of obviously having a stable of managers who they know, they have multi-decade relationships with, and can deploy through them. So that that's probably the biggest eliminating or deselecting factor among LPs is just whether they have the apparatus to consider first time fund managers.

I think a couple of other things. Owen and I have been around real estate for a long time. We have a lot of experience in real estate investment management. We have track records from prior firms. Climate Core Capital, as an emerging firm, by definition doesn't have a track record in and of itself. So it's about building trust with investors and allowing them to vet your background so they can see that what we've done in the past will translate to how we work together here in Climate Core. But that limited internal track record is certainly a cause for hesitation among LPs.

And the other reason for hesitation is just that it's new. The other side of the differentiation coin is that it's new and it takes time to understand. We're all told, as emerging managers, it's important to differentiate, and I would wholeheartedly agree with that. But at the same time, you do have to spend a lot of time educating, and investors want to see it play out. So I think it's a handful of very typical reasons why LPs would be reluctant to take a first look at us.

That's said, I'll give LPs a lot of credit in terms of many of them have turned onto this notion of climate risk. It's kind of percolating around their institutions or their families. It may not be primetime, but it's sort of sitting in the back of their head. And many of them are sitting on large portfolios in areas of high risk. Again, to share an anecdote, we had an investor who we were advancing the conversation with, all very positive. And then at one point at the end of the conversation, he sort of said, "I have a problem, which is that I have been, for the past 10 years, going to my committee and recommending Las Vegas and Phoenix and Miami." And markets that, through our lens, are very difficult to rationalize. And so there's that too. You have existing portfolios that conflict with our more contrarian view, perhaps, and that can also cause issues.

Sure. The structural challenges, I'm sure are relevant in some of these conversations. What are some teachable moments you and Owen encountered along the fundraising journey?

So you hit on one, which is rejection. I think any emerging manager creates their strategy. They have high conviction enough to start their own firm or go out on their own. It is difficult then in many meetings with sophisticated investors with a lot of experience, many potentially older than we are, who reject us. And I think you have to get comfortable with that, and really have the strength of your conviction to know that it is, in some ways, a numbers game, that you do have to persevere. But if you're unable to get comfortable with that rejection, with people questioning what you're doing, it'll be hard and you'll probably give up because it's sort of relentless. That said, you have to understand that there are those that will hone in on it. I mean, you don't want to be sort of absent minded or naive about where you are in the market, but I think getting comfortable with rejection is pretty important. So that's one.

The other is, you never want to fight gravity. You want to be able to pursue the path of least resistance to capital by crafting a capital campaign for the firm you are, not the one you imagine. And what I mean by that is you need to be transparent about where you are. Allow LPs to understand how they can help you, and allow them to understand where you are in your journey. We all want to pretend that we're Blackstone, but we're not. So you need to be able to tell an LP the value that they're going to receive, the differentiation, why they're not getting this elsewhere. And I think that's very important because LPs also recognize there's a risk they're taking with participating with an emerging manager. There's a track record of an upside for that, but I think that needs to be reiterated as much as possible.

And then building the right processes. Capital campaigns are long. They take twice as long as anyone thinks. And so you really need to focus on the hunt, not the catch. Being diligent about your process and how you outreach to investors, how you generate thought leadership, how you participate in events, how you get invited to podcasts, whatever it might be, it's all part of a campaign to spread a message, and really have a process-oriented approach to raising money because the market's going to shift on you. LPs will say they don't like you. But if your process is sound and consistent, it will succeed in the end.

That's great. Thanks for that, Raj. We've all seen emerging manager programs, whether within fund to funds, pensions, endowments, on the rise. That's unquestionable. At the same time, what do you foresee for the future of this landscape as it relates to LPs' willingness and interest in investing with emerging managers that have unique specializations like you do?

Yeah, like you've mentioned, you've seen these programs proliferate, particularly among the public pension set over the past cycle or decade. I think our view is that these programs are going to continue gaining in popularity for a really simple reason, which is that, in the emerging manager domain, LPs can extract economics and generate structural alpha in a way that they can't with legacy relationships or incumbent market leaders. And to put that another way, basically we are in the early days of a journey, and getting started is the most important thing. And so providing benefits to those, whether it's through fees or promote or participation, providing that to investors who get us started is something that's very available in the emerging managers space.

So I think that's a very kind of straightforward, rational, economic reason why these programs will proliferate. And there is a lot of evidence to suggest that, over time, emerging managers outperform, whether that's because they're hungry or whether they have an overlooked or unseen opportunity, probably a combination of the two. Emerging manager programs also tend to direct capital to either minority, diverse led firms, women owned businesses. And I think that initiative is not going away again, particularly among the public pension set who are seeking to diversify their roster of managers.

I think one thing I would put out there is I think the definition of emerging manager, well, I would hope it gets honed over kind of the coming cycle of these programs. I think at the very outset of these programs developing, they were very broad. And some of that was recognizing that real estate, in particular, private equity, these are capital intensive asset classes. At the same time, and other emerging managers may feel the same way, but you're at an event, and you're shaking hands with other GPs, you're sharing the story on your firm, and someone says, "Oh yeah, we're a seven year firm with three billion in AUM," and the thing that goes through my head is kind of get out of my airspace here.

So I think the breadth of the definition of emerging manager may need to narrow a little bit. And it is hard work to underwrite new teams, to underwrite and understand new ideas. But I think that's part of the challenge in any investment asset class is it's hard to have a new idea and break through, particularly when the other ideas at the moment are working just fine. Our idea is predicated on the notion that certain ideas aren't going to work as well in the future as they have in the past. So yeah, I mean I think the emerging manager bucket or the emerging manager allocation is definitely here to stay. It'll grow, it performs, but certainly needs to mature perhaps.

So one final question that I always like to come back to, and maybe both Raj and Owen, your own feedback would be great. What advice would you give to a GP that wants to start their own fund? Knowing the journey you've been through, what would you tell them?

Yeah, that's a good question. I think I would answer in two ways. I think one is really understanding why you're different. And whether that's in terms of your team, or your strategy, or your market focus, or even your structure, I think it's really important to build your brand around that differentiation. Because otherwise it's really easy to get lost in such a competitive market. And again, crafting everything around that differentiation.

The other thing I would say is make sure you have a good partner or a good partners, because it's going to be a lot harder if you don't. We're lucky in terms of being able to work together well and being aligned and wanting each other to succeed as much as each of us as individuals. So I think that's what gives us kind of longevity and the eagerness to pursue this every day.

Yeah, Jon, the only one I'd add, I think, is to stay open-minded about what your exit might look like. Something that we regularly talk about is just how much the landscape is changing in terms of what sustainability and resilience mean. How different large actors in the financial universe are coming to terms with their disclosure reporting and decarbonization obligations that they have made public, and various decision makers are now being held to fiduciary standards on.

I think many of the entities that might end up being the most interested parties in Climate Core funds in the future are groups we never could have imagined on day one. So to the extent that funds and those starting out can stay open-minded about how their strategy might morph, but also how the things they are building might appeal to different entities as the journey progresses, that's something that definitely we have revisited many times, and we'll probably continue to do so.

That's great. Well, Raj, Owen, thank you so much for the wonderful insights, both on your firm, but then also the journey as an emerging manager. I really do appreciate it, and I look forward to seeing you at our conference in May. And thank you to our listeners for joining us for this episode of Fund Flow, and have a good one.

Thank you for joining us on this episode of Fund Flow. To learn more about today's discussion, please email host Jon Finger at jfinger@mcguirewoods.com. We look forward to hearing from you. This series was recorded and is being made available by McGuireWoods for informational purposes only. By accessing this series, you acknowledge that McGuireWoods makes no warranty, guarantee, or representation as to the accuracy or sufficiency of the information featured in this installment. The views, information, or opinions expressed are solely those of the individuals involved and do not necessarily reflect those of McGuireWoods. This series should not be used as a substitute for competent legal advice from a licensed professional attorney in your state, and should not be construed as an offer to make or consider any investment or course of action.