- 14 NAIC members raised 18 oversubscribed funds in two years
- Group promotes diverse managers to LPs
- Emerging managers must educate themselves about market before fundraising
Fundraising for emerging managers is “a tale of two cities,” says Robert L. Greene, president and CEO of the National Association of Investment Companies, a network of diverse-owned private equity firms and hedge funds with a collective $80 billion in assets under management.
For first- and second-time funds, it’s a challenge, “taking generally around two to 2 1/2 years to raise a fund — anywhere between $100 million and $500 million — and lots of inefficiency, lots of LP meetings.”
On the other hand, “for the more established diverse managers, funds that have raised III through V and had good performance, it’s a much better situation. In the last two years, we’ve had 14 diverse managers raise 18 oversubscribed funds. Those funds are generally getting raised in about a year, nine to 12 months.”
So how can emerging managers increase their chances for a successful first or second fundraise?
“The first thing is to, before launching the fund, spend a lot of time talking with existing funds in the marketplace, that have either raised their first or second fund and come out of the market,” Greene said.
“Second is to have a really good understanding of what the LPs want, both in terms of product and returns but also their typical bite size and geographic footprint. … And the best way to do that is to attend some of the larger industry conferences and hear first hand, but also to interview managers that have them as existing LPs.”
Greene said first-time managers often think they’re fundraising when “what they’re really doing is spending time and money and effort educating the marketplace and themselves. If you can educate yourself before going into the marketplace, it can be a more efficient process.”
The 46-year-old NAIC advocates for diverse managers in a number of ways. “We publish a quarterly report called MINT, Managers in the Marketplace, which is a comprehensive overview of diverse managers in the marketplace at a particular time, with a tear sheet on each member,” Greene explained.
The group also holds an annual roadshow featuring five or six stops, with 10 to 12 managers meeting large numbers of LPs in particular cities. “We produce a quadrennial study taking a look at the previous 10 years of performance of diverse managers, in partnership with KPMG.” Greene said the last report, released in 2013, showed diverse managers generally outperforming the marketplace and a global index. The next report is out this month.
If LPs have goals via an emerging-manager program, “we seek to hold them accountable for stated objectives. And if they don’t, we seek to be evangelists.”
“We try to use the success and effectiveness of our firms to demonstrate it’s not a social experiment, there’s a real market there, and there’s a lot of talent that is not being included,” he said. “A broadening of the aperture, while maintaining the selectiveness of the filter, will continue to produce great opportunity with new managers.”
Robert L. Greene, President and CEO, National Association of Investment Companies. Photo courtesy of the association.