Emerging Managers' Biggest Risk Isn't Market Performance

In Brief:

The private equity industry faces a paradox where experienced professionals with decades of track records are labeled "emerging managers" simply because they're launching first-time funds. In a revealing discussion on the Fund Shack podcast, Kim Pochon, Global Head of Primary Investments at Unigestion, and Joe Briggs, Founder of BCF, dissect this phenomenon in a candid discussion about the risks and rewards of spinning out from established firms. With average ages in the late 40s to 50s, these aren't fresh graduates but seasoned veterans willing to leave seven-figure compensation packages on the table to build something of their own. The conversation reveals how LPs assess these new ventures, the critical importance of team dynamics over individual track records, and why 40% of Unigestion's portfolio historically consisted of emerging manager investments that later graduated to become established franchises.

Big Picture Drivers:

• Entrepreneurial Freedom: Experienced professionals seek autonomy to pursue deals with deep conviction rather than deploy capital for acceptable returns

• Market Evolution: The fundraising environment has become more challenging, creating natural stress tests for new teams before they even launch

• LP Strategic Positioning: Institutional investors recognize early access to future brand-name managers as a competitive advantage

• Alternative Structures: Independent sponsors and hybrid mini-funds offer flexible pathways between deal-by-deal execution and traditional fund models

Key Themes:

• Team Dynamics Over Track Records: The primary risk factor for emerging managers isn't market execution but internal team cohesion during inevitable setbacks

• Geographic Disparities: The US independent sponsor ecosystem significantly outpaces European development in capital availability and institutional support

• Relationship Loyalty: Early LP backing creates lasting partnerships that provide privileged access and communication channels even as managers scale

• Structural Innovation: Hybrid models like "mini-funds" and shortened duration vehicles serve as stepping stones to traditional institutional fundraising

Key Insights:

• Team Failure Causation: Every emerging manager investment that resulted in capital loss stemmed from team explosions rather than investment performance failures.

• Due Diligence Duration: Minimum due diligence periods for emerging managers extend to one year, with some relationships developing over five to six years before commitment.

• Financial Sacrifice Reality: Successful professionals routinely abandon seven-figure compensation packages and unvested carried interest to pursue entrepreneurial ventures.

• LP Assessment Methodology: Investors conduct structured interviews with junior team members to evaluate cultural dynamics and conflict resolution mechanisms beyond senior leadership.

• Success Rate Correlation: The challenging fundraising environment paradoxically benefits LP selection by stress-testing teams before first close rather than after deployment.

• Scaling Economics: Deal-by-deal structures provide flexibility but create perpetual fundraising friction that limits scalability compared to committed capital models.

Memorable Quotes:

• "These are very experienced people that have seen many cycles and often it's quite funny because that's probably the first thing is to test a bit the ego of these people" - Kim Pochon, explaining how seasoned professionals react to the "emerging manager" label

• "Seven digit money on the table to set up something new of course in the long term maybe they don't see they will not make more some of them, but at least they will be happy" - Kim Pochon, on the financial sacrifices professionals make for autonomy

• "In our experience so the 30 years emerging manager experience of the funds that went bad... it was always team let's see the team exploding" - Kim Pochon, identifying the primary failure mode for emerging managers

• "Can these people disagree together? It's very important and actually the recent years with the very tough fundraising market that we have seen... the honeymoon period was very short" - Kim Pochon, on how market stress reveals team dynamics early

• "None of them regret. None of them regret that move. And again to do something that well they're also an owner of what they do" - Kim Pochon, reflecting on successful emerging manager outcomes

The Wrap:

The emerging manager landscape reveals a fundamental tension in private equity between institutional scale and entrepreneurial conviction. While the label may bruise egos, the phenomenon represents experienced professionals choosing ownership and autonomy over comfortable employment. Success hinges less on individual capabilities than on team resilience under pressure, with LP due diligence processes evolving to stress-test these dynamics extensively. The geographic divide between US and European ecosystems suggests significant growth potential, while hybrid structures point toward more flexible capital deployment models that could reshape how private equity firms launch and scale.