Amid the shadows, a glint of light shines into PE fundraising

In the midst of one of the worst fundraising markets of all time, a hint of optimism has emerged as new firms continue to be formed.

First-time fundraising is down, yet LPs are still interested in getting to know new firms. Fresh research from placement firm Probitas Partners found that 75 percent of the 69 LP respondents said they were interested in seeing new firms formed through spinouts of experienced teams that worked together.

That, compared to 2 percent of respondents who said they don’t look at first-timers, by policy, and 12 percent who said they’ve slowed or stopped investing in first-time funds.

The survey also found that 48 percent of respondents said they were only focused on groups with attributable track records, while 43 percent said they were looking at new teams pursuing niche strategies.

While spinouts of experienced teams from the same former shops led the way, 40 percent of respondents said they were willing to look at experienced teams coming together for the first time, the survey said.

The research shows that LPs remain interested in emerging managers, even though first-time fundraising is down. First-time funds only raised $6 billion globally in the first quarter of 2023, after raising $67 billion all of last year, according to Buyouts data.

“LPs are constrained with liquidity, and when that happens, their most precious capital gets allocated to core relationships, they re-up with their best and most favorite groups they don’t want to lose, and most core relationships tend to be with larger-cap managers,” explained an LP that allocates to new managers.

“What that means is that the smaller and more up-and-coming managers, or emerging managers, are taking a lot longer to hit fundraising targets,” the LP said.

While the market is tough on new managers, nearly every GP seeking capital in today’s market is having a tougher time than in the past. Funds are taking longer to raise, and targets (save for the best-of-the-best) will be smaller than prior funds.

LPs’ re-up decision is also a longer, more rigorous process than ever before, according to sources in recent interviews. This all points to an environment that, while challenging, presents opportunities for new shops.

And emerging managers have an advantage over more established players. They are not having to deal with problems in existing portfolios. “Some of the best buyers right now are emerging managers that are not hamstrung by large, un-exited portfolios. They don’t have fires they need to put out and can focus all their energies on investing capital,” Stephanie Geveda, founder and managing partner of new shop Coalesce Capital, told Buyouts recently.

With this backdrop, Buyouts just published its updated list of “the most interesting first-time funds in the market.”

Throughout the year, Buyouts gathers intel about the most talked about first-time funds in the market from our networks of LPs and fundraisers. We published our last list over the summer, and this represents our update for the year. We’ve removed some names that held final closes earlier this year, and added some new names like Consello Capital, Citation Capital, Astira Capital and Otro Capital.

Read more here on Buyouts and, as always, let me know about new firms we should include as part of the database. Hit me up at christopher.w@pei.group or use our anonymous tip box on Buyouts front page.

Quick reminder, if you enjoy this kind of conversation and insight, we’re all gathering at the JW Marriott Orlando in Grande Lakes, Florida March 6-8 for our inaugural NEXUS 2024 private equity conference. We have around $20 trillion of LP capital confirmed to be in the room, including folks from CalSTRS, Texas Permanent School Fund and Florida SBA, not to mention PE luminaries like Jonathan Gray, Howard Marks and David Rubenstein.

Early bird pricing for NEXUS 2024 expires today! Buyouts subscribers save over $1,800 off their registration and can bring their colleagues at the same rate (after this date will be a $1,300 saving). Click here to learn more about NEXUS 2024.