It's no secret that the fundraising environment has been challenging this year, and the landscape is particularly tough for emerging managers for various reasons.
Despite hints of optimism in the market, LPs continue to be tentative about investing with emerging managers. When they are looking at their investments or looking at their GPs, the track record is one of the biggest considerations. For emerging managers, the key is to differentiate yourself and ensure you have an easily understandable strong strategy. In addition, selecting suppliers that are well-known and respected in the industry can be beneficial as LPs avoid undergoing due diligence on any new providers.
When it comes to the fundraising environment, the last 18 to 24 months have been challenging. Institutions are being more selective in terms of the GPs that they're investing in. There is a lot of demand for a minimal amount of capital. Managers now need to start building relationships with investors two years out ahead of fundraising, rather than the six months that have previously been adequate. This relationship-building should include checking in every six months or so to give them an understanding of your timelines and goals.
Fundraising is just one of the challenges managers are facing right now. The past two years have seen geopolitical crises, inflation, lingering effects of COVID-19 and volatile markets. This has been particularly challenging for emerging managers, who are very reliant on the rest of the market. We’ve also seen a lack of exits on the sponsor side, valuation problems and a lack of liquidity coming back into the system. LPs may be wary of first-time funds, making it more difficult for emerging funds to create relationships and fundraise, and also making it harder for them to establish a track record.
Beyond those external factors, we also have to consider the human side of LPs. When things feel unstable, we gravitate to the familiar. For LPs, this translates to sticking with familiar relationships rather than taking a risk on first-time funds who they may have just met. In this respect, the size of the fund matters less than the familiarity. This is a challenge that takes longer for managers to overcome, as familiarity comes from time.
Emerging managers need to position themselves in many different markets and on a more global scale than in the past. Technology can help them do this, changing the way investments are evaluated and monitored.
At SS&C we work closely with emerging fund managers, helping them and their investors maximize their returns in a challenging market. If you are thinking about launching your next fund, get in touch for a new perspective on how a fund administrator, backed by proprietary leading technology, can help your next fundraise.
Or, to learn more about how emerging managers can address these challenges in a difficult market, view our "Embracing the New - Decoding LPs' Perspectives on Emerging Managers" webinar.
