Editor’s Letter: Raising a fund as an emerging manager

  • Survey finds average time to raise emerging manager fund is 11 months
  • LPs plan to commit to an average of two emerging managers per year
  • Anecdotal evidence doesn’t match fundraising numbers

Among the toughest things a GP can do is go out and ask people for money. And that is the challenge first-time managers have when raising a fund.

GPs are deal people and fundraising for a new fund could be a slog, said Jeff Gendel, principal in business development with Gen II Fund Services, a fund administrator. Gendel spoke at Buyouts Insider’s recent Emerging Manager Connect conference in New York.

Gen II partnered with Buyouts Insider on the second annual Emerging Manager report. The survey featured answers from about 50 emerging managers and 40 institutional investors.  

According to the survey, the average time it took to raise funds was 11 months, with the fastest happening in about seven months and the longest 14 months.

“GPs are deal people; they’ve never really been fundraisers … and [many] GPs don’t have an in-house IR team, a number of them don’t hire placement agents,” Gendel said.

“They’re out there on their own raising capital and they’re not professional fundraisers. The length of time it takes to raise a fund is emblematic of the skill set most GPs have. … [Raising] capital may not be their No. 1 thing.”

Eleven months is a long time to raise a fund, especially for a younger team that needs to start putting capital into the ground and earn fees to keep the lights on. And this in a particularly strong fundraising environment, said Tom Angell, partner with accounting firm WithumSmith+Brown.

There is sort of a split in the market related to emerging managers. First-timers and newer shops are anecdotally more popular than ever — but actual fundraising numbers for first-time funds has been dropping over the past couple years.

Many limited partners want to find a first-timer or young firm to partner with, to get in the door in the early days on a talented team likely to grow. But actually pulling the trigger on such a relationship is not easy.

The average size of emerging-manager funds that have closed was $339 million, according to the survey. The average target on funds closed was $269 million. Many of the respondents, 80 percent, did not use a placement agent on their successfully closed funds, the survey found.

Emerging-manager GPs who have closed funds met with an average of 82 limited partners — an average of 102 for buyout funds, the survey found.

On the other side, LP respondents met with an average of 37 emerging managers, with plans to back an average of two emerging managers each year, the survey found. LPs planned to make an average commitment of $23 million to emerging managers.

Typically, it takes an average of nine months from first introduction to a signed commitment, the survey found.