What are emerging manager programs and how do I qualify?
Short answer
Emerging manager programs are allocations some institutions set aside for newer fund managers. Each program sets its own rules, so there is no single test. Most look at fund size, track record and team. In my experience, the bigger hurdles are committees, consultants and minimum asset levels. Check each program's published criteria.
Qualifying starts with knowing who writes the check and what that investor needs to see. Some institutions run formal emerging manager programs. Others simply allocate to newer funds case by case. The rules differ from one investor to the next, so read each program's published criteria before you spend time on it.
Who actually sits behind these allocations
I talk about five common types of hedge fund investor. They are high net worth individuals, family offices, endowments, pension funds and fund of funds. Each one has a different bar for a new manager.
High net worth investors, often people worth $1 to $10 million, tend to do the least due diligence. They invest on referral and personal relationships, and the sale cycle can be short. Family offices have more barriers. Endowments and pensions have even more process.
I walk through the five types of hedge fund investors and how early each one will back a manager.
Summary and key takeaways from this video
Size and track record hurdles to expect
Family offices are the group I know best. There are 20,000 or more of them globally, so risk preferences run across the full spectrum. Some will come in early. Many will not.
"They might really resist investing if you're a private equity fund until you're in fund two, three or four."
For a hedge fund or other long only fund, a family office might want you to reach $30 to $50 million in assets before it invests as a normal LP. Sometimes it is $100 million or more. A family office may also not want to be more than 10 or 15% of your LP base. That is why your first checks often come from other places.
Committees, consultants and what they decide
Endowments and pensions often decide by committee. Several people must agree. Many also work with an institutional investment consultant. Sometimes the consultant makes the decisions. Other times the consultant only gives an opinion and the endowment or pension makes the final call.
"You want to get on the good list of these institutional investment consultants, and they can be a great ally of yours if you win one over on working with you long term."
So qualifying is not only about a number. It is also about being known to the people who screen managers.
Getting ready before you apply
A guest in one of my videos made a point I agree with. Smaller managers cannot sit on the sidelines the way the largest firms can. You need to do deals. Before that, you need an investment thesis. She said most fund managers do not have one when she first meets them.
A guest explains why emerging managers need a clear thesis and a defined investor profile before they raise.
Her advice was to stay in your line and target investors based on that thesis. I would add that you should keep your materials, track record and fund terms ready for committee level review.
What I have said on this at our events
One practical point on timing. At the startup phase you are usually not targeting institutional investors, because they often want you at $70 to $100 million, sometimes a couple hundred million, before they come in. Most managers start with friends, family, angels and private investors, and the family office space is the middle ground. If you are early, some managers explore a performance fee only or another fee structure that aligns them with the investor taking a chance on an emerging manager. Wear that alignment on your sleeve.
"At the startup phase you're not targeting institutional investors. You really need to get to usually $70 to $100 million, maybe even a couple hundred million, before you have institutional around, and a lot of people start with friends, family, angels, private investors, and then the family office space is really the middle ground."
"Perhaps wearing that on the sleeve and having performance fee-only or some sort of fee structure which aligns you with the investor who's taking an investment into an early-stage emerging manager."
Facts from this talk
- There are 20,000 or more family offices globally, with a full spectrum of risk preferences on backing new managers.
- A family office may want a hedge fund to reach $30 to $50 million in assets, and sometimes $100 million or more, before investing as a normal LP.
- Some family offices do not want to be more than 10 or 15% of a manager's total LP base.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: 5 Types of Hedge Fund Investors, Why Emerging Fund Managers Struggle to Raise Capital | Wealth Management & Investor Shifts. Quotes come from the video captions, lightly edited for readability. Figures are the speakers' own estimates and experience.
General education only. Not legal, tax or investment advice.
Talk to a securities attorney to explore options around fund marketing rules, investor eligibility rules and fee structure terms. Do not use AI to write your own legal agreements.
Where to start
- 1List the institutions and programs you want and read each one's published criteria.
- 2Write down your investment thesis and the investor profile it points to.
- 3Compare your assets and track record against the thresholds those investors use.
- 4Start relationships with institutional investment consultants early.
- 5Review your outreach approach and materials before you contact investors.
Follow-up questions
Do I need a track record to get into an emerging manager program?
Each program sets its own rules, so check the published criteria. In my experience, investors want to see something they can underwrite, and some family offices wait until a private equity manager is in fund two, three or four.
Can a family office replace an emerging manager program?
Sometimes, but family offices vary a lot. Some will invest early and others want $30 to $50 million in assets or more first. They may also cap their share of your LP base at 10 or 15%.
Who decides at an endowment or pension fund?
Often a committee, and sometimes an institutional investment consultant. The consultant may be discretionary and make the calls, or non-discretionary and only give opinions.
Related questions
- What does an institutional allocator expect in quarterly reporting?An institutional allocator expects reporting that comes from an institutional platform.
- Why Do Institutional Investors Reject Emerging Managers?In my experience, many rejections trace back to a missing institutional platform.
- How do I get a meeting with a pension fund CIO?A pension fund CIO rarely decides alone.
- How do I prepare a DDQ for institutional investors?Build one master DDQ before any institution asks for it.
Work through it with the data room checklist. See all institutional investors resources.