The crowded fundraising environment is taking a toll on managers who’ve recently started their own funds — even those with proven track records.
In 2021, a record-breaking year for private markets, first-time fund managers — including experienced managers who have spun out from established funds — only received 5.7 percent of the total capital raised in those markets, according to data that Preqin shared with Institutional Investor. That percentage has been falling for much of the past decade, according to Preqin.
Fundraising generally should be easier for first-time fund managers who have worked at established investment firms. But according to Mathieu Boisvert, founding partner and CEO of Bastion Asset Management, rising operational costs have made it difficult for even more experienced managers.
“The operational requirements when you launch a new firm [have risen] over the past few years,” he told II. Not only has inflation put a greater burden on first-time managers, but tightening regulatory controls have made it harder “to have an institutional platform to present to investors,” he said.
“Now, the current market environment makes it even more difficult to launch a new strategy,” Boisvert said. “[Every] type of [allocator] is licking their wounds one way or another in their portfolio. Usually, [they’ll] patch up what’s not doing well or decide on existing investments, instead of looking for new investments.”
Besides the crowded fundraising environment, other factors can also play a role in preventing first-time fund managers from receiving capital. “A good portfolio manager is not necessarily a good business manager,” said Charles Lemay, partner at Walter Global Asset Management. Lemay also serves as the president of the Emerging Manager Board of Canada, a nonprofit advocacy organization in Canada. He added that some experienced managers might lack the ability to manage people, develop business plans, or pitch to investors when starting their own funds.
Andrea Lamari Walne, general partner at Manhattan Venture Partners, said that not surprisingly, fundraising is even more difficult for managers without prior experience in investment. “Being an emerging manager is the hardest thing right now,” she said, adding that a pedigree from one of the big names like Sequoia or Andreessen Horowitz still helps first-time fund managers attract capital.
Boisvert agreed that track records are important in the current environment. In July, his firm was selected by the Quebec Emerging Manager Program, which grants mandates and offers mentorship to first-time founders of investment firms. Before Boisvert co-founded Bastion Asset Management in January, the group had already had a successful track record managing money for institutional clients. The connections he accumulated over the years have helped the firm secure funding from QEMP, according to Boisvert.
“It’s a very hard fundraising environment,” Lemay said. “People who have little experience in investing and are trying to start their own shop are going to be extremely discouraged, unless they really get lucky.”