Fundraising has been challenging for many PE managers.
LPs are plagued by persistent liquidity constraints and a volatile macro environment. As a result, they lean toward perceived safe bets and allocate to large, brand-name managers.
The number of US PE funds closed in 2023 dropped to 439, the lowest since 2015. However, more funds closed on over $500 million, marking 33% of the total fund count last year. This is up from 18% in 2022 and 2021.
The trend continued in Q1 2024, with 47% of funds sized more than $500 million.
So how can an emerging manager come out on top if it is seeking capital right now?
There are several tactics they can employ to gain an edge, according to panelists at the SuperReturn US West Private Equity conference, which took place last week in the Hilton Universal City hotel.
GPs need to adapt to the longer fundraising timeframe and learn to build momentum during that time span—striking new deals, lining up exits and making sure they are not flying under LPs’ radar, said Michelle Jacobi, a managing director at Gatewood Capital Partners, an anchor investor in emerging managers.
“That’s the market right now,” Jacobi said. “People don’t have the capital to deploy in three months. It’s going to be six, nine or twelve months, or even longer. You need to keep the engagement with them in that timeframe.”
For first-time managers, it is helpful to raise seed capital to initiate investing and create a plan for deployment and exits for the next 12 to 18 months. GPs can establish credibility by providing regular updates about their plans to investors and showing they are taking action on their commitments.
Featured image by Alan Thornton/Getty Images
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