NEXUS 2024: Seeded primaries emerge as strategy to counter tough fundraising

As an analgesic to the painful fundraising market, emerging managers ought to build a track record on a deal-by-deal basis, or even invest while raising a fund, according to speakers at PEI’s NEXUS 2024 private equity conference Wednesday.

Two first-time managers spoke about their experiences starting their own firms and the challenges they have faced, especially trying to convince limited partners to come on board.

“My advice to people that haven’t been doing this for a long time is, go deal-by-deal, be an independent sponsor and get some deals under your belt,” said Luke Myers, managing partner at Truelink Capital.

Truelink, formed in 2022, spun out of Platinum Equity and has been raising its debut fund. The firm has made four investments so far as it fundraises – a strategy that is not new to the industry, but one that more GPs are using.

The seeded primary allows LPs to inspect, monitor and even invest alongside a new GP to get a sense of how they are executing on their strategy.

Coalesce Capital, which closed its debut fund earlier this year on $900 million, also closed a deal while it was fundraising, according to founder and managing partner Stephanie Geveda, who spoke on the panel.

Even without a portfolio of many investments, Coalesce was able to talk to potential LPs about the team’s long history together working on transactions and to executives who could vouch for its professionals and strategy, Geveda said.

“It’s not necessarily an IRR table, or really even like a wall of glistening tombstones in your Zoom background, that will help you provide to investors that you have a reliable track record,” she said.

It’s important for a new manager to take the many “no’s” it will get from LPs as a lesson and a potential point of contact for the next fund, they both said.

“The no’s come fast and come to your face but you can’t take the hurt that comes from that and let it stick,” Geveda said. “There are so many unforeseen circumstances and variables that come into this equation that may not exist the next time we have to raise another fund. Take rejections not as a ‘no’ but as a ‘not yet.’”

Great performance is the best answer to a rejection, Myers said. “It’s very disappointing, but it happens and it’s a long-term game. Over time we think we’ll convince them otherwise. When we post great returns, there’s no better vindication.”

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