With Fundraising Harder Than Ever, Emerging Managers Get Creative

“We had a lot of our existing [investors] say that they were shying away from new funds given their capital constraints,” says New Heritage Capital’s Nikkie Norris.


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Younger asset managers have been working in a tough fundraising environment over the past year and a half — so now they’re getting creative.

Emerging managers speaking at a conference Wednesday hosted by the Texas Teachers’ Retirement System and Employees’ Retirement System detailed the ways they’re working with investors to raise capital.

“It’s definitely been an interesting fundraising environment overall,” said Nickie Norris. But New Heritage Capital, the firm where she serves as chief operating and compliance officer, was an outlier: it closed above its fundraising target in 2023, a year when investors ended up overallocated to private markets.

The firm, which focuses on lower middle market companies, raised $438 million, topping its original cap of $350 million.

“We had a lot of our existing [investors] say that they were shying away from new funds given their capital constraints,” she said. “They weren’t even going into all of their re-ups. We even had some LPs say they were asking their firms to push off until 2024.” Still, after Norris’s team talked with their existing investors, the firm chose to go ahead with a fundraise in 2023, as it thought enough were ready to re-up or invest for the first time.

The firm also thought hard about how to handle an oversubscribed fund. Limited partners who allocate to emerging funds typically do so to avoid some of the size-related constraints of larger funds, such as too many holdings.

Toward the tail-end of the fundraising process, a group of allocators wanted to commit capital together. The firm decided to poll the fund’s existing LPs to gauge interest. A majority approved, believing the extra capital would open more doors for the fund.

Robert Jue and his team at Standard Real Estate Investments found LPs were attracted to a joint venture model, rather than a fund. The firm inked three deal-by-deal joint ventures with LPs individually — each invested in single assets. It also has worked with GCM Grosvenor on a separate joint venture structure, offering similar deals to a consortium of investors.

“It’s provided us with the opportunity to be very flexible,” Jue said. “In a market environment like we faced, our original strategy was to invest in apartment development. Then we pivoted to industrial development and some workforce housing assets.”

Milton Berlinski, co-founder at Reverence Capital, said his team has found success with offering co-investments to LPs. While not all investors want to co-invest, Reverence offers up the documentation and research it has done for the co-investment to LPs anyway. Access to information is prized by limited partners, who will often co-invest or ask for a coveted seat on a Limited Partner Advisory Committee to get it.

Reverence has been part of six major emerging manager programs, four of which it has graduated from as it has grown. This includes Texas TRS. In 2023, Reverence returned more than 2x the amount of capital versus what it had invested, which went against the market grain and allowed it to stand out from some of its peers, according to Berlinski.

His team has put a keen focus on succession planning, too.

“Every time we get ready to go and do a new fund, we sit around a table, and we lay out where we’re going with the next two funds,” Berlinski said. “We lay out the likely promotions and we put against that where we are likely to exit.”