As emerging managers would be the first to admit, the world of private equity can be a tough maze to navigate. This is particularly so for those first-time fund managers raising a maiden fund or aiming to gather institutional capital for a step change on a follow-on fund. While emerging managers are seen as hungry to out-perform, often delivering a more unique investment strategy and with greater alignment on the economics, they face fundraising challenges including offering smaller ticket sizes and proving track record.
In the new Emerging Managers Barometer report from the British Private Equity & Venture Capital Association (BVCA), developed in collaboration with IQ-EQ and Debevoise & Plimpton, we try to cut through the clutter and help emerging managers find their way through some of the ‘do’s and don’ts’ of raising their second or third fund.
There is no one-size-fits-all approach to ensure success in this competitive space – but gaining an understanding of how investors think, along with learning from other managers who have done it before, will provide valuable insight to emerging managers. To that end, the BVCA surveyed more than 40 global institutional investors and family offices between January and February 2020 to gather their insights on the challenges and opportunities facing the new generation of private equity and venture capital fund managers.
Of course, since this research took place the world has been turned upside down by the COVID-19 pandemic, but – as BVCA's Leon de Bono points out – emerging managers are the lifeblood of our industry and will continue to be so as we navigate and emerge from these difficult times. We therefore believe that, although they should be viewed through the lens of life before Coronavirus, the survey results remain useful.
Among the other findings you will find within this report, there are two key messages that emerging managers can take away:
- Talk to as many people as you can: Keep in mind that the entire ecosystem of investment professionals, be it administrators, lawyers, placement agents, auditors or investors themselves, is rooting for you. So, we would recommend that you take time out to talk to them and solicit their help. What’s more, in the case of the professionals, the first conversation is generally gratis – so make it count!
- Don’t underestimate the time it will take: Despite having a conducive ecosystem around you, it will still take a lot of time and effort to put a team together. Imagine getting people with the right skills to work together and produce returns for 15 years or more! It will demand patience on your part to develop the track record and the right investment strategies that will attract potential investors and win their trust in your fund. Be prepared to go through the pain, and the gains will start piling up.
This survey is a snapshot of thoughts and suggestions from investors and fund managers alike. And as a number of emerging fund managers have suggested based on past success, it’s not just about money but the fact that managers entering the industry bring it a fresh perspective. As emerging managers challenge old practices and bring new solutions to old problems, they are better positioned to deliver on returns in a rapidly changing world where traditional assets are fast losing their appeal.