Why Emerging Fund Managers Struggle to Raise Capital

Richard C. Wilson interviews an external asset manager about raising capital for emerging funds and independent sponsors.

Richard C. Wilson asks an external asset manager why smaller funds and independent sponsors struggle to reach capital. The guest compares their position with large wealth management firms and discusses how investors assess a manager's focus and familiarity with a market. The conversation uses alternative energy to illustrate the demands of a complex sector.

In this video: Richard C. Wilson (Interviewer), External asset manager (External asset manager)

What they said

1. Large checks are concentrated. Richard says two large wealth management firms crossed the $10 trillion in asset under management. He frames that concentration as a challenge for smaller managers seeking access to large checks. (at 0:32)
2. Large firms can wait. The guest says large firms can sit on the sidelines because their capital is fine and they can choose alternatives such as fixed income. In her view, those firms can generate returns of roughly 7% to 8%, while their investors have a different profile and the firms have reputations to protect. (at 1:27)
3. The guest on investment theses. The guest says she often rewrites a manager's investment thesis, and that many arrive without one. She says the thesis should explain how the money will be used and what the manager does best, then help identify the investor profile to target. (at 2:23)
4. The guest on expertise. The guest warns that appealing ideas outside a manager's area of expertise carry a much higher risk of default. She recommends focusing on what the manager knows and does best. (at 2:51)
5. Energy has many players. The guest says energy projects address different parts of the field, and that investors may not understand the many players involved. She says investors prefer to stay away when they lack the expertise to assess the asset class or work with experts. (at 3:47)

In their words

"from my daily experience I would say they are the same or a bit more conservative"

"It is a great idea. You have reduced costs, you have incentives"

Why it matters if you are building or preserving great wealth

The guest says lower costs and incentives don't resolve the question of who understands each alternative energy project among its many market players. For family offices considering these deals, a manager's ability to work with sector experts can determine whether the opportunity is assessable.