How are new managers expected to cope with a more competitive fundraising environment, in which brand names and long track records draw limited partner investments? Limited partners tell us that ESG-themed strategies are a key differentiator, and any sector/geographic focus to which current GP relationships offer limited exposure.
The rising tide of interest in the asset class has certainly buoyed new entrants: 54 first-time funds closed in the first three quarters of 2021 in North America, a robust figure relative to recent history according to data provided by Preqin.
And investors are opening their pockets.
There’s some evidence that LPs are adjusting as well, with investors newly considering fund of funds vehicles to get exposure to managers whose fund sizes would otherwise preclude investment. Institutional investors told the research service that 49 percent were aiming to both re-up with current general partners and seek new funds.
Still, standing out in a competitive market requires a certain pedigree, and a focus that can lure investors.
“New entrants need an angle that will appeal to investors and tick the right boxes on crucial issues such as experience and track record,” reads Preqin’s 2022 global private equity report.
That angle increasingly focuses on the make-up of investment teams, ability to manage and track governance changes at portfolio companies, and achieve gains investors typically associate with niche vehicles, say limited partners.