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First-time funds raised $25 bln in ’16, most since 2011: Preqin

  • More than 40 pct of LPs say they won’t back first-time managers
  • Debut funds raise $25 bln, up 16 pct
  • Average fund size, time to raise improve

Investor sentiment for first-time managers appears to be slipping even as fundraising numbers for debut vehicles are on the rise, according to a recent report released by data provider Preqin.

First-time funds raised $25 billion in 2016, a 16 percent increase from 2015, the report says. That’s also the most money raised since 2011, when first-time managers raised $43 billion across 223 funds.

That amount was raised across fewer funds than in prior years, with 195 first-time funds holding final closes last year, down 11 percent from 218 the year before. Those funds represented just 7 percent of $347 billion raised across the industry last year. In 2011, debut funds represented 20 percent of the industry’s fresh capital.

Despite the strong fundraising numbers, more than 40 percent of investors said they would not invest with a first-time fund manager, compared with 35 percent of investors in 2011, Preqin reported. By the same token, the percentage of investors who said they would invest in first-time funds slipped to 30 percent from 34 percent.

Several other factors showed how strong first-time fundraising was last year. For example, the average size of first-time funds rose, to $149 million in 2016 from $114 million in 2010, according to Preqin.

They managed to raise larger amounts in relatively short periods as well. First-time funds that held final closes in 2016 typically spent 15 months on the market, compared with 14 months for more established funds. In 2015, the typical fund — established or otherwise — spent 16.2 months on the market.

“As the presidential election showed us, you can’t always trust the polls,” said Sixpoint Partners Founder Eric Zoller. “There is an increasing amount of supply coming into the market.”

“Emerging managers and spinouts are increasingly being considered alongside established managers,” Zoller said. He added that many institutions have hired personnel or tapped consultants and fund-of-funds managers to specifically seek out emerging-manager commitments.

Preqin notes that larger investors like California Public Employees’ Retirement System established emerging manager program documents. Other major LPs, including New York City’s public pension system and Los Angeles Fire and Police Pensions, expanded their emerging-manager programs in recent years.

Investors who remain active among emerging managers are largely drawn in by the returns, particularly among 2010-2012 vintages, according to Preqin. The median returns generated by debut funds from those years have outperformed those generated by more established managers.

“Although emerging-manager funds have generally found it more difficult to attract investor capital, they have tended to deliver better returns to investors,” according to the report.

Action Item: For more information about Preqin, visit www.preqin.com

A man poses with dollars, after buying them at a money exchange in Caracas, on Feb. 24, 2015. Photo courtesy Reuters/Carlos Garcia Rawlins