In recent years, increased caution among institutional investors has seen attitudes to first-time funds change, with the number of investors willing to make capital commitments to new managers rapidly declining. In 2011, 26% of surveyed by Preqin said that they would invest with first-time managers, compared to 34% open to committing to first-time funds in 2010, as shown in Fig. 1. Only 20% of investors surveyed in 2012 said they would invest in first-time funds, reflecting increased caution among investors. There is a clear reluctance among many investors to commit capital to a manager with no proven track record, with the result being a fall in the number of first-time funds reaching a final close. In 2011, 53 first-time funds reached a final close whereas 68 did so in 2010. Just 23 first-time funds have successfully reached a final close to date in 2012.
Institutional investors now scrutinize potential new investments more closely than ever, with many looking to invest with firms which can prove they are specialists in their particular market. Many of the managers that have been fundraising successfully in recent months are managing funds which are focused narrowly on a particular sector or location where the team is able demonstrate expertise. First-time managers may become more attractive to investors if they can demonstrate that they offer a unique opportunity, even if they have not previously managed a fund.
Investor appetite for co-investment opportunities, joint ventures, and separate accounts has increased since 2011, with many investors choosing to invest through these structures as an alternative to pooled fund commitments. Many investors believe they can benefit from the lower fees, direct control and unique opportunities that these alternative structures can offer. In 2012, 27% percent of investors were interested in co-investment opportunities, an increase from 24% in 2011. Similarly, 23% of investors expressed an interest in separate accounts in 2012 compared to 21% in 2011, and 30% of investors had a preference for joint ventures in 2012 compared to 27% in 2011.
The resources and knowledge required for these investments mean that it is typically larger investors that most frequently look to gain exposure through these structures, with appetite for these investment structures growing with increasing investor size. Seventy-one percent of institutions with $10bn or more in assets under management invest in joint ventures, with 68% utilizing separate accounts and 58% interested in co-investments opportunities. In contrast, among investors with less than $1bn in assets under management, just 20% invest in joint ventures and co-investment opportunities respectively and 16% consider separate accounts.