Preqin Special Report: Making the Case for First-Time Funds

From Preqin. Covering areas such as first-time fund performance and fundraising, and with examples of LPs that have had success investing in these new managers, LPs reading this report can expect a data-driven overview of first-time fund investing.

First-time funds have traditionally faced challenges securing capital commitments from LPs due to the nature of traditional closedend fund due diligence. Most investment professionals (or their external advisors) with responsibility to vet these private capital funds typically place significant emphasis on the GP’s track record, firm and investment history, and the duration of time for which the investment team has worked together. As closed-end funds are long-term and illiquid investments, many LPs do not feel comfortable committing significant capital to unproven managers, especially as many of these first-time funds focus on diverse and innovative, yet unproven, investment ideas.

Every top performing and “brand name” GP has had to raise a fund for the first time. Whether these first-time funds were teams spun off from a balance sheet at an investment bank or insurance company, or individuals leaving a more established GP to start their own firm, there have always been LPs providing capital commitments to back these investment ideas. Many of the LPs that have supported these first-time GPs’ initial investment strategies and talents have been rewarded with strong (and in some cases, exceptional) fund performance, increased portfolio diversification, experience with niche strategies and other factors beneficial to their overall investment program.