Why Do Institutional Investors Reject Emerging Managers?
Short answer
In my experience, many rejections trace back to a missing institutional platform. Institutions often look for audited financials, a fund administrator, well prepared legal documents and a clear, concise pitch. Many emerging managers also look unprepared when a large check shows up. I have watched good managers lose institutional interest because the basics were not in place. Check the specifics with securities counsel.
The platform is missing when the call comes
In my experience, many emerging managers are not rejected for a weak idea. They are rejected because the back office is not there. My friend John told me institutions started knocking on his door before he had an audit, third party advisers, the right legal counsel or a fund administrator. He was happy to take the big money. He was not ready to receive it.
"No institution will invest with you without an institutional platform, and you have to be able to pass there."
John said third party due diligence firms test you on this. Mercer is one name he mentioned. He said it took him many years to earn top ratings from each of them. So the rejection often happens quietly, before anyone talks about returns.
John explains what he had to build before institutions would invest and why he says skipping it wastes your time.
Summary and key takeaways from this video
A polished, consistent presentation counts
Institutions also judge how you present. If an investor has two options, why would they pick the group that is less put together? I tell managers to aim a half notch above the level they are raising from today. That way you are ready if a billion dollar family office or an institution suddenly meets you.
Here are the things I see hurt managers most often:
- 80 page pitch decks that nobody reads
- A teaser that is a long word document with an essay typed out
- Slow or sloppy replies to investor emails
- A take it or leave it fund structure with no room for side letters or co-GP ideas
In this episode I walk through the signs of institutional quality and how investors judge them within seconds.
Summary and key takeaways from this video
Why smaller managers feel the squeeze
There is also a market reason. In a conversation about wealth management, a guest pointed out that the largest firms can sit on the sideline. They can wait and put money into fixed income, because they cannot take extra risk with their reputation. A smaller manager cannot wait for the perfect moment. You have to do deals.
The same guest said many managers do not even have an investment thesis written down. They chase shiny new ideas outside their expertise, and that raises the risk of default. Her advice was to stay in your lane, state what you are best at and let that define your investor profile.
This clip covers why emerging managers struggle to get big checks and why a clear thesis and value proposition matter.
Summary and key takeaways from this video
What to do before you pitch institutions
John made the point that he never went out chasing institutional money. If you run a diligent business, institutions tend to find you. So the work is getting ready ahead of time. That often means audited financials, an experienced administrator and legal documents that many managers prepare with qualified counsel. A securities attorney can talk through what fits your own situation.
From my books and event talks
One gap I see is that managers think institutional quality only matters once an institution calls. It helps much earlier. In my experience, few managers raising capital $50,000 at a time have a master due diligence questionnaire, yet those investors keep asking what else they should be asking. Having what institutions require answers that for them. And in a time when some investors wait for the economy to settle or for an exceptional opportunity, being well prepared can help keep you in the conversation.
"For example, nobody raising capital $50,000 at a time that I know of has a master due diligence questionnaire, but those investors ask all the time, "What else should I be asking? I don't know what I should be asking next in my due diligence." Well, having what all the institutional investors require would help you at that high net worth level."
"In a time like this, where some investors might wait to see the economy through or wait for an exceptional opportunity, it's really important to have all your ducks in a row and be institutional quality."
Key facts
- John said he spent about $100,000 to start audited financials on a quarterly basis while his fund was still small.
- Third party due diligence firms such as Mercer test whether a manager can pass institutional requirements.
- Many managers send 80 page pitch decks or long word document teasers, which I do not count as institutional quality.
Sources
From Richard C. Wilson's Centimillionaire Strategies YouTube channel: How to Build a $1B Real Estate Platform | John Lettera & Richard C. Wilson, Becoming Institutional Quality | Ep. 17, 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 legal documents, fund structure options and side letters and co-GP terms. Do not use AI to write your own legal agreements.
Where to start
- 1Write a one page investment thesis that says what you do best.
- 2Cut your pitch deck and teaser down so they are short and easy to read.
- 3Talk to securities counsel about fund documents and structure.
- 4Price out an audit and a fund administrator before you need them.
- 5Set a rule to reply to investor emails quickly and professionally.
People also ask
Do I need an institutional platform if I only raise from family offices?
I still recommend being a half notch above where you are raising. It helps you close faster and keeps you ready if a large investor appears.
Can I skip the audit and administrator until an institution shows interest?
John said he learned that waiting made the process harder when institutions arrived. I would start planning early and speak with securities counsel.
Does dressing formally matter to institutions?
No. You can be professional in a T-shirt and jeans or a three piece suit. What matters is that you communicate well, respond quickly and act well under pressure.
Related questions
- What track record do institutions require before investing in a fund?Many institutions want a team larger than two or three people, a track record of about seven years or more, and at least a dozen deals done.
- How do sovereign wealth funds invest in private deals?Sovereign wealth funds sit among the institutions that write 10, 30, 50 or even 100 million dollar checks at a time.
- What do endowments look for in emerging fund managers?Endowments want a manager who can win over a group, not just one person.
- How do I get a meeting with a pension fund CIO?A pension fund CIO rarely decides alone.
Work through it with the pitch deck grader. See all institutional investors resources.