Saw a post about PE firms going downhill but was curious to get input on asset managers going down hill. By asset managers I’m referring to mangers with a FOF heritage. (i.e Hamilton Lane, Harborvest, LGT, Brookfield etc.)
These are obviously large names and given what we’re witnessing in the current fundraising environment where the big just keep getting bigger, do you think certain asset managers focused on the MM will struggle to fundraise?
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Based on the WSO Dataset, the current fundraising environment is indeed challenging, particularly for asset managers that are not among the largest or most established. Here are some insights and considerations:
Consolidation of Investor Preferences: Investors, especially institutional ones like pension funds and endowments, have been showing a preference for larger, more established funds. This trend is driven by the perceived safety and stability these funds offer, especially in uncertain market conditions.
Challenges for Mid-Market (MM) Funds: Asset managers focused on the mid-market may face tougher fundraising conditions. This is because they often don't have the same track record or resources as the larger players to attract and reassure investors during volatile periods.
Impact of Market Dynamics: The broader market dynamics, including economic downturns, increased market volatility, and tighter regulatory environments, can disproportionately affect smaller or mid-sized funds. These funds might not have the same financial buffers or diversification as larger funds.
Operational Challenges: Smaller asset managers might also face operational challenges that can impede their ability to execute strategies effectively. This includes less bargaining power, higher operational costs relative to assets under management, and potentially less access to high-quality investment opportunities.
Investor Scrutiny: With a history of strong returns in the past decade, investors are now more scrutinous about where to allocate their capital. They are likely to favor asset managers who can demonstrate not just past performance, but also robust risk management strategies and a clear path to future returns.
In conclusion, while large asset managers like Hamilton Lane, Harborvest, LGT, and Brookfield might continue to attract significant capital due to their size and established reputation, mid-market focused asset managers could indeed struggle unless they can effectively differentiate themselves and adapt to the evolving investor expectations and market conditions.
Sources: Troubled fundraising processes, How to approach LMM PE recruiting?, Q&A: Finally made PM @ LS fund, https://www.wallstreetoasis.com/forum/asset-management/will-asset-management-industry-just-wither-away?customgpt=1, Will L/S Hedge Funds Be Around In 10 Years?
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