Emerging manager
A fund manager raising a first, second or third fund, or running a smaller pool of assets.
There is no single definition. Some LPs count any manager on Fund I to Fund III, others use an assets under management cap, and some run dedicated emerging manager programs with their own allocations. Emerging managers usually have a shorter track record and rely more on the team's earlier experience.
Common definitions include managers on Fund I to Fund III, firms with less than $1B or $2B in assets, or teams whose current firm is under a set age. Diverse manager programs often overlap with emerging manager programs but are not the same thing. Always read how a specific LP defines the term before assuming you qualify.
Several US public plans, including programs in New York, California, Illinois and Texas, have run dedicated emerging manager allocations, sometimes through a fund of funds or a separate account run by an outside adviser. Some foundations, endowments and family offices also back first-time funds deliberately because early funds can outperform and early relationships give access to later, oversubscribed funds.
Worked example
A former partner at a growth equity firm leaves to raise a $150M Fund I. She has led six deals at her old firm with a 2.8x gross multiple. She targets three LP groups: family offices that know her deals, two funds of funds with emerging manager mandates, and a state pension's emerging manager program that allows commitments of up to $20M to funds under $500M.
Common questions about emerging manager
Do emerging managers outperform established managers?
Several industry studies have found that first and second funds, as a group, have shown higher median returns and a wider spread of outcomes than later funds. The wider spread is the point: the best emerging managers do very well, but picking them is harder, which is why LPs diligence the team so closely.
How long does it take an emerging manager to raise a fund?
Commonly 12 to 24 months from first meetings to final close, and first-time funds often take longer than later funds. Having an anchor investor, a clear track record and a focused LP list are the biggest factors in shortening that time.