Rapid fundraising will ‘stress LP pipelines’, conference hears

Communicating with LPs in a transparent way is key for managers navigating congestion, according to panellists from Morgan Stanley and MetLife.

The velocity of fundraising will continue to be a problem for LPs this year, as they may not have the capital allocation or staff to deal with the congestion, a conference heard this week. It will also impact the GPs who must vie for their limited attention.

Funds have been coming back to market more quickly –⁠ particularly in 2022 and late 2021 – which has been⁠ “stressing LPs’ pipelines”, said Neha Champaneria Markle, head of AIP private markets solutions at Morgan Stanley, on a fundraising webinar hosted by the Women’s Association of Venture and Equity. More firms are likely to raise in such a fast fashion during the rest of 2022, added Markle.

“We see so many more funds that we like, that we think are good, that we think can make good money for us as LPs, than we are able to commit to,” said Markle. “And we don’t like to say no.”

Her advice for GPs on the fundraising trail was to be transparent and early in communicating with LPs or prospective LPs about when the fund will be in market. “We don’t look at it as a GP being presumptuous,” added Markle, “We just need the information… so that we can slot you in.”

Another LP panellist, Agata Rzamek Praczuk, director at insurance firm MetLife, echoed this sentiment. Her team of 11 has 32 GPs back in market in Q1, she said, as a result of residuals from last year and super-short fundraising cycles.

This, of course, impacts LPs’ openness to emerging managers, said Praczuk. When firms prioritise managers that are in market or have indicated that they will be soon, there may be little allocation left over.

Indeed, it seems larger managers could stand to benefit from the congestion on the back of their existing infrastructure. “It’s much easier to fundraise when you’re part of a platform that has a machine that fundraises for a living, as opposed to people like me who have to do it as a part-time job in addition to all the investment work that we do,” said Sasha van de Water, founder of Keyhaven Capital Partners.

Van de Water added that some managers, such as panel sponsor Landmark Partners, are being snapped up by bigger platforms that can tackle non-investing issues, such as fundraising, full time.

“It’s very distracting, frankly, when your primary job is to be an investor, to be out in the market for 12 months, talking to investors about fundraising,” she said.

As far as first-time managers are concerned, she has advised would-be investors to start on a deal-by-deal basis: build LP relationships and ensure there is a track record in the current configuration.