What’s the right GP commit in a first-time fund? Family offices still primary contributors to emerging funds
Hope your week went well.
We have lots of emerging manager stuff today.
First, according to our latest Guide to Emerging Manager Investors & Service Providers, family offices represent a decreasing percentage of contributions to emerging managers, even though they still remain the primary source of commitments to early funds. Around 18 percent of capital flowing to emerging manager funds came from family offices (compared to 20 percent last year), while 16 percent came from public pensions, the survey found.
We had our annual emerging manager conference this week. One interesting discussion focused on the appropriate commitment a new GP should make to his or her own fund. GP commitments generally fall in a range from 1 to 5 percent of total commitments, according to Buyouts Insider’s PE/VC Partnership Agreements Study 2018/2019.
But when it comes to a new manager, the size of the GP commit is not necessarily the biggest factor. Rather, it’s the level of risk the manager is taking in making the commitment.
“I’m not asking someone to impoverish themselves and risk their ability to feed their family [but] I have to believe that if this thing fails, I want you at home sobbing,” said Andre Rice, president of Muller & Monroe Asset Management, who spoke on a panel at the conference.
Ed Powers, managing director at HarbourVest Partners, said the commitment also depends on the partner’s level of wealth. A GP who has made a ton of money who makes a large GP commitment may not be as impactful as a mid-level PE professional who makes a smaller commitment, but one that is more meaningful.
“We want people on that edge who have that hunger,” Powers said.