Software designed to help emerging VC and PE firms growFIND OUT MORE
As volatility has hit the investment space at large this year, the private markets have been viewed as a haven from the chaos. It’s a positive sign for private capital managers, but as manager competition has continued to grow, emerging managers in particular are likely feeling the pressure to stand out and offer a premium investor experience.
Allvue recently surveyed a group of GPs to learn about the challenges and plans for growth in the current market environment. Emerging managers (AUM under $2.5B) made up more than half of the group. Here are the key trends that emerge after a closer look at emerging manager-specific data.
According to Allvue’s data, 27% of emerging managers said that more manager entrants to the space and the resulting competition had the biggest impact on their operations – the most-cited challenge among this group.
GPs of all sizes heavily cited growing competition as well as plans to expand into new asset classes, so it’s clear this pressure of competition is permeating private markets broadly. However, it certainly affects emerging managers heavily as they work to get their brand established with fewer resources and less AUM than their larger counterparts.
With this in mind, emerging managers can set themselves apart to LPs by investing in their operations to streamline processes like accounting and investor reporting, helping them focus in on finding private equity deals and fundraising. Plus, it will sharpen their investor experience, creating loyal investors that stick around for many fundraising cycles.
When asked for the top challenge that affects their operations, over half of the emerging manager audience split between three data-themed options:
The presence of each option might even say more about LPs than it does about emerging managers. Investors increasingly expect an ongoing two-way exchange of investment information, and emerging managers – as with larger GPs – are struggling to keep pace. Access to desired data is a key element of the investor experience, however, and GPs, large or small, will have to meet this expectation by implementing the right software and workflows.
Insourcing versus outsourcing the accounting and reporting function is often a key discussion for smaller or newer private capital managers. Our survey shows that outsourcing is overwhelmingly the chosen way to go for emerging managers, as 92% say they use a fund administrator.
By outsourcing these back-office functions, they can afford to keep headcount and costs low while also putting more of their focus and resources into front-office tasks like fundraising and dealmaking. Of course, when outsourcing the accounting and reporting functions, some tradeoffs do arise, such as loss of direct access to the fund’s books, or the decision to duplicate efforts by keeping a set of shadow books to check the fund admin’s work and have these numbers ready to reference at a moment’s notice. In cases like these when emerging managers get stuck on the cons of both insourcing and outsourcing, co-sourcing can offer a middle ground, whereby the manager selects their own accounting and reporting software and brings in a fund administrator who performs the work directly on the manager’s own systems, negating the challenge of losing control of accounting data.
Overall, Allvue’s data shows that emerging managers are facing significant challenges in the current private market environment – particularly on the data management front. But with the right choices made for their operations and tech stack, they can solidify their place in this industry and continue to grow and find new avenues of business and growth.
Learn more about how Allvue can help your business break down barriers to information, clear a path to success and reach new heights on the investment landscape. Fill out the form below and we’ll reach out to talk more about how we can help your business.
At Allvue, we’re committed to harnessing technology and expertise to tackle the biggest challenges facing the private capital space. Our Resources hub, offering blog articles, whitepapers, case studies, videos, and more, shares industry best practices and reflects the experience and learnings of top Allvue experts and our partners motivated to see this industry continue to grow and thrive.
Our goal is to provide guidance as well as food for thought for anyone interested in the private equity, venture capital, private debt, and public credit spaces – whether you’re learning the fundamentals or getting ready to raise your fifth fund. Many of our articles contain links to trusted third-party resources to support our takes, and all our content is regularly reviewed and updated to keep current with the fast pace of alternative investment innovation.