Learn what top LPs are looking for when assessing new firms and emerging managers
Private markets across Asia have seen significant growth over the past decade as international and global funds have established a presence in key locations, but in particular as local firms have emerged and expanded, with many on their seventh or higher fund series. Indeed, in 2020, Asia-Pacific accounted for 28% of the world’s private equity assets under management, according to Bain & Company. And there is scope for further growth – when asked by Preqin where they saw most opportunity in 2025, 39% of LPs surveyed said Asia-Pacific, up from 26% in 2020, and putting the region on a par with North America.
Yet attracting LP capital may prove more challenging that these figures suggest. There are clearly many investors looking to back the region’s rising talent, but with many more established managers in the market now, newer GPs are likely to face more stringent due diligence than they might have previously.
“When we came to Asia 20 years ago, there were only emerging managers,” says Sunil Mishra, Partner at Adams Street Partners. “They were the only option.” And many of these lacked the attributes that LPs typically look for. “The industry in Asia has evolved significantly,” adds Haresh Vazirani, Investment Director at abrdn. “Ten years ago, we’d see new managers coming to us without a track record, yet now most GPs have demonstrated their investing capabilities, including through exits. There are also new opportunities in what is a maturing and deeper market that weren’t there before – that means they can unearth new strategies.”
As a result of the region’s private markets development, LPs today are hunting out emerging managers with more specific attributes. Track record is clearly important. “If a firm is completely new, we can’t back the team without a recognised track record because the market now has other managers available,” says Mishra. “It can be in a different place or size or form and we will do our work to assess how repeatable this is, but there has to be some investment track record.”
Some recommend that managers start out by putting together short duration funds or getting some deals under their belts before launching a fundraising effort more formally. “Visibility is really important,” says Ralph Büchel, Partner at Unigestion. “Very often we see emerging managers that have already made one or two investments with another cornerstone investor – that way we can do the due diligence on the manager, but we can also look at assets and that gives you confidence on the initial portfolio.”
Others are also prepared to scope out managers via co-investments. “Building new manager relationships through co-investments allows us to see what the fund manager does on the ground,” says Vazirani. “We can co-underwrite with them, see what valuations they are buying at and really drill down into the deal dynamics. At the same time, it allows the GP to showcase to LPs how the team interacts with each other and with the portfolio company management.”
In a crowded market, newer managers are also having to find ways of differentiating themselves. While LPs typically seek out emerging managers for the returns they can generate, with some suggesting that first and second funds often outperform the wider market, many are also seeking investments that are additive in other ways to their overall private markets portfolios. “We back emerging managers to generate strong returns, but what’s equally important is the complementarity they bring,” says Büchel. “We want to manage our portfolio actively and, with the majority of emerging managers applying a differentiated sector specialisation, that can be a great tool to provide our investors with exposure to sectors with structural, long-term tailwinds.”
“We look for emerging managers that have great deal flow and proven access to the best founding teams,” adds Philipp von dem Knesebeck, Managing Partner at Blue Future Partners. “And this is always about differentiation. Emerging managers really need to focus on defining their strategy and building a brand behind it. Their differentiation could be specialisation in a value add strategy, a geography or vertical expertise. GPs really need to communicate that differentiation for founders and LPs to take note.”
Yet, given the long-term nature of private markets funds and investments, LPs also naturally place a heavy emphasis on the team when assessing emerging managers. “The stability of the partnership is very important,” says Knesebeck. “How can a GP team prove that they will still be together in ten years’ time? Have they been together through highs and lows?”
Florian Kohler, Managing Director for Asia at Obviam, agrees. “Emerging managers are about people, people and people,” he says. “The failures we see are where partners didn’t get along for some reason – it could be carry share, workload or they couldn’t agree on investment strategy, perhaps. This is most likely where partners come together who hadn’t invested as a team before – so managers in this situation really have to go the extra mile to demonstrate to LPs why it will work. There will always be problems in emerging markets and so it’s critical that GPs can get through these.”
As a result, emerging managers also need to put significant effort into building a firm, with all the processes and systems in place, and to create the right culture for the team to thrive. “There has to be transparency across the organisation,” says Kohler. “That means with LPs but also among staff at all levels about what the firm is doing and why. You need to make sure your associates have your back and that they are tied in for the long term. They will only do that if they like you and are committed and incentivised to the fund manager’s mission.”
With fundraising totals across Asia down in 2020 for the third year running, it’s clear that funds are currently having to work hard to attract LP capital, despite the fact that investors are keen to gain more Asian exposure. And for emerging managers in the region, the bar is higher than ever before. However, there is clear appetite among LP for those with a track record that can be replicated in a differentiated strategy and with the right structures in place to keep their team together through thick and thin. “Focus on building a strong brand and reputation,” says Knesebeck. “The rest will flow from there.”
We back emerging managers to generate strong returns, but what’s equally important is the complementarity they bring
Emerging managers are about people, people and people
