Despite evidence that first-time funds generally outperform and may even offer lower volatility than more mature funds (see http://meteor5cap.com/first-time-funds-are-not-the-riskiest/), first-time funds can take materially longer to raise. Data from Preqin show that in 2017 the average first-time fund took 17 months to raise versus 13 months for later-generation funds.
Traditionally, the most common means of incentivizing investors to make a first-closing commitment to a fund is to offer economics – such as a modest management fee break, for example. However, in today’s robust, record-setting fundraising environment, economics are no longer the primary incentive used to bring investors into a first close. As reported in Coller Capital’s Summer 2018 edition of the Global Private Equity Barometer, the leading reason LPs are committing to first closings today is fear of missing out! Strong competition among LPs for a place in new funds is spurring LPs to commit early to ensure an allocation.
Finding new managers early and building relationships are critically important in generating investment outperformance.
Meteor5 is dedicated to sourcing and creating strong future leaders in private equity well before they begin raising a fund. If you are a new management team needing development capital, please call us. Alternatively, if you are seeking to invest in high-quality managers sooner, please reach out to Meteor5. We will do our best to reduce your FOMO.