TIPS FOR EMERGING FUND MANAGERS
Over the past decade, private credit has exploded, and with it, new firms run by emerging managers have taken the stage. At our most recent Kayo Women’s Credit Forum held in Boston, we heard from five women on what it’s like to start a new fund in private credit today.
Pictured Left to Right: Carrianne Basler, Moderator (AlixPartners), Andrea Grosz (Lightspring Capital Partners), Carolyn Galiette (Ironwood Capital), Rui Falcon (Princeton Asset Management), Jeri Harman (Avante Capital Partners), and Melanie Brensinger (Anagenesis Capital Partners)
Here are our top takeaways:
1. Don’t have a Plan B.
Why? When you don’t have a Plan B, then Plan A has to work. Showing investors that you are “all in” counts for a lot.
2. Still, lead with a track record.
All the interest from institutional investors supporting new and diverse managers is not altruism. It’s about returns. “I’m not here because it’s fun,” said one institutional investor. “I’m here because diverse managers deliver stronger returns.” Emerging managers first and foremost need to prove theirselves at delivering returns to investors and find unique opportunities in their niche.
3. Start-up capital is key.
It’s expensive to start a fund. “The biggest difference between Fund I and Fund III is that you don’t go three years without being paid,” explained one fund manager. It can take 3 years to collect the first management fee, so new managers need to prepare to cover operating costs and work without a salary for a period of time.
4. Fundraising is hard, so get creative.
Placement agents hesitate to represent first-time funds, often because of the smaller amount of capital they are looking to raise and the smaller number of institutional investors who will take a chance on a first-time fund. SBIC structures can be an option to get a first-time fund going. SBICs are privately formed and managed investment funds which, if licensed by the Small Business Administration (SBA), may borrow from the SBA two times their privately-raised capital on very favorable rates and terms.
5. Hiring is more challenging.
Hiring is never easy, but it can be harder for new firms. Compared with established firms, careers at emerging firms are viewed as riskier and the economics more uncertain. Not every candidate is willing to take the risk. Looking for the best people with the right risk tolerance, while also building a diverse team with a variety of backgrounds and perspectives, takes a lot of work.
6. It’s worth it.
“The only regret I have is that I didn’t do this sooner”, said Jeri Harman, founder of Avante Capital Partners. Our other speakers echoed the same sentiment. For the rest of us in the room, wondering if we could ever dare to venture into an entrepreneurial pursuit, the answer was not to overthink it. In her own words, Rui Falcon from Princeton Asset Management said: “Just do it. If you think too much, you’ll never get off the couch.”
We feel lucky to have learned from these wise women at our 2019 Credit Forum. “Working with this incredible group of founders was fantastic”, reflected Carrianne Basler, Managing Director at AlixPartners, who moderated the panel. “Their openness and insights were so inspiring, and I believe a few of the ladies in the audience might have made a decision to follow in their footsteps.”
What tips would you add to this list? Let us know below in the comments!