What does the future hold for emerging managers?
Despite global challenges and the economic rollercoaster ride of the last several years, it’s never been a better time to raise a first-time fund in Europe.
Yes, it’s true: The numbers consistently prove that the opportunities for emerging managers are ever-present and continuing to grow.
In light of collective challenges we’ve faced across borders – including the Covid pandemic, economic crises, social injustices and accelerating climate change – investors have been able to forge new paths in their sectors, leaning into their strengths.
Many have found success in fundraising by diving deeper into a niche, approaching pitching in new ways and leveraging their network to take more risks.
To wrap up the guide, we've outlined several reasons why emerging managers are at an advantage in the future. We then discuss one of the most common pitfalls to avoid, followed by considerations when taking your first leap to get started.
In recent years, emerging managers have shown that being the new kid on the block doesn’t have to mean fewer chances at success. In fact, investor sentiment toward newer firms is generally favourable.
While experience and investment track record is still a key driver of investment affinity for LPs, it’s clear that emerging managers have an opportunity to lean into. According to the 2021 Buyouts Emerging Manager Report, nearly 80 percent of LPs said they would be likely or very likely to back a team that emerged from a larger firm. Over 50 percent agreed that the risk / return profile for emerging managers is attractive compared to that of established managers.
For example, areas such as sustainability, climate tech and deep tech are showing no signs of slowed growth.
First time funds have a higher chance of IRRs over 25 percent, according to Pitchbook’s report on emerging managers. Emerging managers also tend to pay closer attention to a smaller number of investments, offering expertise (i.e. due to the aforementioned niche market USPs) in addition to cash. For LPs, the idea of investing in a fund that challenges its portfolio is an attractive indicator for future success.
While the future is bright for emerging managers, it’s not without its challenges. The good news is that potential pitfalls for new fund managers can be easily avoided with planning and a strong vision.
Because today’s pool of emerging managers continues to grow, it’s important for new entrants to stand out from the pack.
LPs look for experience, differentiation and a bold vision. We’ll dive more into this topic, so be sure to stay informed via our newsletter.
If you’re reading this now, chances are you are interested in launching your own fund – whether it’s deal-by-deal, a first institutional fund or a spinout. Here are several broad aspects to consider before taking the leap into your new journey as an emerging manager.
Within your sector, what is your niche? What technologies are on the horizon, and in which ways are they being brought to market? Where are the gaps, and what is your role to play?
Your investment team’s track record matters to LPs, but so does your network. Oftentimes LPs will want to know who else is investing in your fund and backing your vision.
In addition to bringing on an investment team with a strong track record and demonstrated success, you should consider factors such as ESG, diversity and inclusion when building your team.
You will want to ensure your fund is primed for success from the beginning. That means creating a solid plan for elements such as front, middle and back offices, regulatory licenses, compliance, IT and recruitment. You may want to outsource these infrastructure responsibilities in order to keep costs low and avoid an irreversible drain on resources.
Alex Di Santo has significant specialist expertise in private capital covering private debt and private equity (spanning venture, growth and buyout).
As European Head of Private Equity, Alex is responsible for the development and implementation of Gen II's private equity fund services strategy including maintaining the highest levels of client care.
He has the additional responsibility of raising the business’ profile in the private equity fund services space, as well as identifying and targeting new and strategically important revenue opportunities.
Daniel Greenaway is a partner in the firm’s London office. He is a member of the Asset Management and Investment Funds practice group.
He concentrates his practice on launching funds and investment platforms for clients that raise capital across a global, primarily institutional, investor base. He has extensive experience advising institutional and boutique fund managers on private funds across private equity, venture capital, credit, infrastructure and real estate. Daniel acts for managers whether they are raising a discretionary fund, spinning out of an existing institution or raising co-investment funds. He also assists institutional investors on their fund investment and co-investment programmes.
Conor Smyth founded TritonLake in 2015 with a vision for bringing together alternative investment opportunities and sophisticated investors.
Prior to founding TritonLake, from 1997, Conor was a partner at MoneyMate (subsequently Compliance Solutions Strategies), a technology and services business partnering with global investment and wealth management firms.
Conor grew the business through partnerships with senior leaders on both sides of the Atlantic, culminating in the strategic sale of the business to private equity-backed Compliance Solution Strategies.
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