Laura Pollock’s Third Street Partners launched its lift-out business 18 months ago, just before the pandemic began.
“The pandemic has created an opportunity for individuals to reflect on what do they want their career to look like,” Pollock told Institutional Investor. With that comes opportunity for an executive search firm like Third Street.
Its lift-out business involves facilitating an entire investment team’s next career move. Third Street acts as a “professional matchmaker,” as Pollock puts it, finding teams that would be good fits for existing asset managers — or that would do well if they spun out on their own.
Pollock started Third Street in 2013 after spending years at industry recruiting stalwarts Russell Reynolds and David Barrett Partners. In September, Pollock hired an M&A expert, John Forsythe, to aid her in building out the lift-out business.
Forsythe has spent years in product development for investment managers, most recently at BrightSphere Investment Group, where he worked for 15 years before striking out on his own.
According to Pollock, asset managers are looking for scale, revenue, and product, and “they need it quickly.” So Third Street looks at the strategies that institutions are interested in, then screens the top managers and teams who may be good fits to be spun or lifted out.
So what makes a viable candidate? “Numbers are great; they’re where you start,” Forsythe said. “The other element that is overlooked is the culture. Investment teams are people. If the team is not high functioning, it doesn’t matter what the numbers say.”
For these teams, it may be the right time to leave when their current employer experiences headline risk or internal disruption, he said.
They could, of course, strike out on their own. But, according to Forsythe, it takes time to build the track record necessary for an institutional investor to be able to allocate capital to the newly minted fund.
“What’s funny is many portfolio managers think they are entrepreneurs, but when you really put it to them, all the sudden they’re like, ‘What do you mean I’m not going to get a base salary or guarantee?’” Pollock said.
Being acquired by an existing manager could solve that challenge. But according to Third Street, asset managers aren’t equipped to execute those kinds of deals.
“The buyers are good at managing their assets,” Forsyth said. “They may not understand how to do a lift out or recruiting. The portfolio managers are good at choosing investments. They don’t know how to sell themselves.”
So Third Street steps in to act as a “management consultant on steroids,” according to Pollock. The firm builds relationships with lift-out candidates before they’re ready to leave their current companies. Then, when the time is right, Third Street starts the deal process, which can take up to 16 or 18 months.
That lengthy affair can take its toll on managers. “You become really close emotionally with these teams,” Pollock said, adding that part of her role is acting as a sort of therapist for the teams. A particular challenge is shepherding a team through breaking the news to their current employer.
“When you get to the resignation part, that’s super stressful for them,” Pollock said. She goes over a script with the team several times and works out all the scenarios about what could happen.
“These are real inflection points for people,” Forsyth added. “They’re a tinderbox of emotions.”