Emerging managers remain a compelling option for long-term investors provided they have full conviction in the team’s vision and investment capabilities.
However, these hungry firms have needed to remain steadfast and disciplined in their fundraising approach in recent years, with institutional LPs, already highly exposed to private equity, opting to dial up their exposure to private credit and infrastructure.
As a group, emerging managers, which ostensibly refers to those who have launched their first or second fund, are required to work harder than established managers when it comes to convincing investors to part with capital. Shorter track records, smaller teams and few, if any, institutional investors to call upon for reference checks, make it a tough environment even when times are good.
In Europe, although the number of buyout funds (across all GPs) increased to 116 in 2024 from 94 in 2023, aggregate capital raised fell slightly to $132 billion compared to $136 billion raised in 2023.
Taking a broader look, global private equity raised $680 billion last year, its lowest fundraising total since 2025, as LPs became more selective and capital-constrained. This was a sharp decline from the $966 billion raised the prior year according to figures used by S&P Global.
LPs have been gravitationally attracted to blue chip global names, seduced by the scale, success and sophistication that emerging managers cannot realistically compete with. But these firms are, at their core, alpha hunters, capable of generating good returns. Motivations are stronger when developing a track record and growing AUM in the early years compared to protecting and repeating one’s success years down the line. The animal spirits are simply more alive in younger firms with a point to prove and a mission to accomplish.
Indeed, the term ‘emerging manager’ should not be inferred as ‘inexperienced’. Even though the fund might be new, investment teams are often highly experienced with many years of deep domain experience to draw upon.
Unigestion Private Equity has been backing emerging managers since the early 90s and are rightly considered pioneers in this space.
“We backed some of the very first funds of EQT, Cinven, Carlyle, Francisco Partners, Sliver Lake, and so on. You name some of the big players, there is a good chance Unigestion was there from the start,” says Kim Pochon, Head of Primary Investments, Unigestion.
Given that Unigestion positions itself as a global mid-market specialist, at some point these funds grow too big, and it becomes necessarily to part ways. Nevertheless, the firm maintains the tradition of backing first-time funds, “because we know they tend to bring something novel, something innovative, and new creation value”.
“We have started to observe that several LPs are committing again to emerging managers, even after leaving the space for some time,” says Pochon. ”We think that this is likely due to the lack of distributions and sluggish performance of several large cap funds. LPs are looking for avenues that go back to the roots of private equity and emerging managers are providing an excellent route.”
On the DPI point, the lack of exit activity has created a logjam and led investors to consider secondary markets to divest assets. This has, in turn, also led GPs to more willingly opt to launch continuation vehicles and hold on to highly prized assets that they consider still have future value to generate. The DPI story has dominated discussions among industry professionals, with NAV loans also being considered as alternative liquidity solutions but the message being conveyed by LPs is quite clear: “We want conventional exits please”. Bain & Company’s midyear 2025 report suggests the ratio of distributed to paid-in capital would ordinarily be about 0.8x for US and Western European funds raised in 2018, yet it stands only a little higher than 0.6x.
Demand-driven Growth
From a demand perspective, LPs are increasingly re-discovering the natural advantages offered by emerging managers. This segment articulates a shortage of available capital and a deep addressable market opportunities formed by the myriad of SMEs facing succession issues or operating in unconsolidated sectors. These two factors lend themselves favourably to generate greater alpha and achieve truly skewed outperformance across a private equity portfolio.
Boris Etcheberry is a principal at Acanthus, supporting clients’ primary fundraising processes and GP-led secondary transactions. Acanthus is one of the most highly active independent and partner-owned actors in the European emerging manager segment.
In his view, unlike larger, more generalist or diversified funds that often yield market-beta returns, emerging managers typically revert to the fundamental tenets of private equity:
- Proprietary Deal Flow: They excel at sourcing off the beaten tracks, proprietary deals, creating their own investment situations typically as first institutional owner, rather than participating in well-orchestrated and highly competitive auctions.
- Attractive Entry Dynamics: While these situations may present inherent complexities due to lack of transparency, this very complexity often translates into attractive entry valuations.
- Deep Value Creation: Emerging managers are uniquely positioned to partner meaningfully with founders seeking succession solutions or ambitious management teams looking to professionalise operations and accelerate growth when underlying companies are at a critical inflection point.
Buyout consolidation drives spin-outs
As large GPs get ever larger – especially if they opt to float on public exchanges, giving them fresh equity to acquire strategic targets – the effect is to propel consolidation. As Moonfare noted, 16% of existing asset managers could face consolidation or extinction by 2027, which is twice the historic turnover rate.
One of the consequences of consolidation is the increased number of spin outs happening in the private equity industry.
At Unigestion, Pochon says it is “almost inevitable” that during the consolidation process, talented investment professionals become trapped in the middle and look for a way out.
“Spinning out to focus increasingly on sector specialisation is a trend we expect to see increase further,” he says.
Another trend driving spin outs is challenges around succession within private equity firms.
“Private equity managers tend to be extremely good at managing succession within business they have bought – smoothly transitioning from the founder to the professional business. But when it comes to managing their own succession, private equity firms can stumble. This in turn reflects in managers leaving firms to set up something on their own, if they get caught in succession challenges,” adds Pochon.
Etcheberry says that many larger firms struggle with effective succession planning. This often creates internal friction and strategic drift, “becoming a powerful catalyst for ambitious and experienced junior partners to spin out,” he says. “These professionals are eager to launch more focused, agile ventures, characterised by greater alignment of returns and economics for both their teams and their investors.”
The old adage 'less is more' holds particularly true at the large end of the market, where challenging exit routes and a closed IPO window can delay carry to incentivise and retain the team.
As a corollary, they represent great exit routes for emerging managers operating at the lower end of the market – often generating a structural multiple arbitrage - given the available dry powder in the upper end of the segment waiting to be deployed, and plenty of partners at these firms sitting on their hands looking to do a deal.
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