- First-time manager fundraising appears to be on the rise
- Has fallen since peak in 2011
- Archean to seed first-time managers, provide back-office help
First-time fund managers face a daunting task: They have to persuade skeptical investors to open their wallets and they must build an infrastructure on which to form a business.
And they must do all this without any fees coming in the door. It can be a Herculean challenge (especially the fundraising bit). So one new platform has emerged to try and help first-time managers concentrate on what they do best: find and execute deals.
Archean Capital Partners, a joint venture between wealth-management shop Veritable LP and Moelis Asset Management, is looking for opportunities to incubate emerging private markets managers. Moelis Asset Management is an affiliate of Moelis & Co.
The joint venture, announced earlier this month, will tap a $13.5 billion network of more than 200 family offices Veritable works with to seed first-time funds across private markets strategies, including buyouts, turnaround/restructuring, growth, credit, infrastructure and real estate. Veritable manages most of the money from the families on a discretionary basis.
The platform also offers new managers back-office services for financial and accounting; taxes; legal and compliance; office space and corporate communications, according to Christopher Ryan, a managing director and head of Moelis Asset Management. These services could also include help crafting fund terms and conditions.
“There’s a considerable amount of capital available to invest in successful private markets funds; there are not a lot of firms or investors who are willing to be first,” said Michael Stolper, Veritable’s founder and chief executive. “We want to provide capital in areas where there’s great investment opportunities, but not necessarily a lot of capital to participate.”
Archean may take part in revenue sharing with the managers it backs. It is not looking to take stakes in management companies, said Robert Lazaroff, head of global private markets investments at Veritable.
“It’s important to us the manager has identified a pipeline of ideas they can allocate to and our funding is substantial enough that they can dedicate their time [to deals] and not be out of the market for a long time,” Lazaroff said.
“This joint venture has the ability to — maybe not seamlessly, but efficiently — get managers from the drawing board to meaningful funding as soon as possible, and create a springboard from which they can raise additional capital,” Stolper said.
First-time managers usually have a tough time raising debut funds. They need to persuade prospective LPs to fund them with little proof of concept. The most popular first-time funds are those managed by well-known executives from bigger firms with track records of investment success. Those managers simply take what they did best and form their own shop around that strategy.
Some of the most successful first-time managers include Searchlight Capital, a firm formed by veteran investors from Apollo Global Management, Kohlberg Kravis Roberts and Ontario Teachers’ Pension Plan. Searchlight closed its first fund in 2012 on more than $860 million. In 2015 it closed Fund II on more than $1.9 billion.
Fundraising for first-time funds has fallen since its peak in 2011, but appears to be creeping back up. According to alternative-assets data provider Preqin, 200 first-time funds closed last year on a total of $25.3 billion. That amount was up 20 percent from the $21.1 billion raised by 218 funds in 2015, and 27 percent from the $19.9 billion raised by 244 funds in 2014.
The peak year for first-time fundraising was 2011, when 224 funds raised $43 billion, more than twice the $18.2 billion raised across 191 first-time funds in 2010. Since the peak year, first-time fundraising fell to $25.2 billion by 211 funds in 2012, and $21.4 billion across 222 funds in 2013, according to Preqin.
Archean has made one investment after about 18 months of sourcing opportunities. It committed $100 million to a first-time fund, raising money from its network of high-net-worth families, as well as a few outside clients sourced by Moelis, Lazaroff said. Stolper declined to identify the manager. Whether the fund is at target or looking to raise more capital is unclear.
Archean also offered the manager back-office services for HR, office space and accounting and finance, Ryan said. Managers who take advantage of these types of services would pay Archean a fee.
The intention is to not get boxed in to certain strategies or types of funds. Archean will explore a range of strategies, regions and asset classes, and might consider committing to a Fund II on a manager it backed early.
“We’re looking to cast the widest net possible,” Lazaroff said.
The firm has several other opportunities in the pipeline, Stolper said. As the pipeline matures, Archean will consider raising a dedicated fund around the strategy, he said.
“That will depend on just how robust, how quickly the pipeline reaches maturity,” Stolper said.
Action Item: Check out Archean’s website here: https://veritablelp.com/archean/
Photo of Rob Lazaroff courtesy of Archean