Emerging Manager

Definitions vary by programme

There is no single definition. Allocators define the term for their own programmes, and the definitions diverge.

• The Employees Retirement System of Texas investment policy statement (effective 1 September 2026) defines an emerging fund manager as a private professional investment manager with assets under management of not more than $2 billion.
• The New York City (NYC) Comptroller's report on the city retirement systems' programmes (November 2022) applies different criteria by asset class. Its private equity direct programme generally looked for managers raising up to $1 billion for Funds II to IV; its private equity early-stage programme for Funds I and II targeting $750 million or less; its real estate direct programme for managers with no more than $2 billion of institutional capital raising Funds I to III of $500 million or less; its opportunistic fixed income (alternative credit) programme for firms with under $2 billion of assets raising Fund II or III; and its hedge fund programme for firms with $250 million to $1 billion and less than three years as an independent firm.

A statement that a manager "is an emerging manager" therefore needs its reference: whose programme, which asset class, and as of when.

Common criteria

Programmes combine a small set of observable tests: fund number (Fund I to III or IV), firm assets under management or institutional capital managed, target fund size, years operating as an independent firm or length of track record, and the breadth of the existing institutional investor base. Some programmes run alongside or inside diverse-manager programmes; the NYC report describes emerging managers as firms early in their life cycle without substantial assets, which can include minority- and women-owned firms. Ownership tests and size tests remain separate criteria even when one programme uses both.

Emerging, first-time, spin-out and other neighbours

• A first-time fund manager is raising Fund I. Many emerging-manager definitions include Fund I, but some exclude it or send it to a separate early-stage programme, as NYC's private equity programme did.
• A spin-out manager is a team that left an established firm. It is new as a firm but may have a long attributable deal record.
• An independent sponsor raises equity deal by deal without a committed fund, and a search fund backs one entrepreneur to buy one company. Neither fits a definition based on fund number.
• A new strategy at a large firm, such as its first credit fund, is a first fund in that strategy but usually fails a firm-AUM test.

How allocators reach emerging managers

Programmes invest directly, through external fund-of-funds or separately managed mandates, or both; in the NYC report the mix varies by asset class, and its hedge fund programme invests only directly. Some investors add economics to early support: GP seeding provides anchor capital to a new manager in exchange for a share of its revenue or equity, and GP stakes investors buy minority equity in an established management company. The NYC report gives the rationale as seeking the best-performing managers, including minority- and women-owned firms, that do not typically have access to large institutional investors. See emerging manager programme.

What diligence emphasises

Without a long firm-level history, diligence leans on attribution of the prior track record: which deals the team sourced, led and managed at previous firms, and whether that record can be presented and verified. It also weighs team cohesion and how carry and ownership are split, operational infrastructure (often outsourced to administrators and compliance providers), concentration of key-person risk, which LPs address through a key-person clause, fund size relative to the strategy and team, and alignment. ILPA Principles 3.0 asks that the GP hold a substantial equity interest in the fund, contributed in cash rather than through management-fee waivers or specialised financing facilities; it sets no percentage.

Evidence on performance

Academic work on private equity finds persistence in returns across a manager's successive funds (Kaplan and Schoar, 2005), and high long-term persistence after controlling for spurious persistence, with performance noisy enough that investors find it hard to identify the funds with top-quartile expected returns (Korteweg and Sorensen, 2017). These findings concern successor funds in general; they do not show that emerging managers as a group outperform or underperform. Claims either way usually rest on commercial datasets with their own definition of "emerging", which has to be checked before results are compared.

Not the same as

• First-Time Fund Manager: A first-time fund manager is raising Fund I; emerging-manager definitions usually extend to later funds and set size limits.
• Emerging Manager Program: The programme is the allocator's vehicle or policy for investing with emerging managers; the emerging manager is the firm that qualifies under it.

How it is classified

• Classify a manager as emerging only by reference to a named definition (allocator, asset class, date).
• Where no definition is stated, record the observable attributes instead: fund number, firm AUM, target fund size, years as an independent firm.

Common mistakes

• Calling a manager "emerging" without saying whose definition applies, for which asset class, and as of when.
• Equating emerging with inexperienced. Spin-out partners can have decades of attributable deals.
• Equating emerging with diverse-owned. Ownership criteria are separate, though some programmes combine them.
• Assuming a manager stays emerging. Passing a programme's fund-number or AUM ceiling takes it out of scope even if nothing else changes.

Edge cases

• A large firm's first fund in a new strategy is usually not emerging under firm-AUM tests, though it may count as a first-time fund in that strategy.
• Hedge fund definitions tend to use firm AUM and years of independent track record rather than fund numbers.
• Independent sponsors and searchers have no committed fund, so fund-number definitions do not cover them.

Questions

Sources

1. Employees Retirement System of Texas Investment Policy Statement. Employees Retirement System of Texas, Adopted 2026-08-25; effective 2026-09-01. Status: current (checked 2026-10-01). Printed p.9, 'Emerging Managers' — supports: Programme definition: an emerging fund manager is a private professional investment manager with assets under management of not more than $2 billion
2. MWBE and Emerging Manager Pension Investments & MWBE Participation in the Bureau of Public Finance, Fiscal Year 2021-2022. Office of the New York City Comptroller, Bureau of Asset Management, November 2022; programme criteria as of December 2021, holdings as of 2022-06-30. Status: Published; later editions not checked (checked 2026-10-01). pp.11, 29, 32-37 — supports: NYC programme rationale and asset-class criteria (PE direct, PE early-stage, real estate, opportunistic fixed income, hedge funds; hedge funds invest directly only)
3. Private Equity Performance: Returns, Persistence, and Capital Flows. Steven N. Kaplan; Antoinette Schoar, The Journal of Finance, Vol. 60(4), pp. 1791-1823, August 2005. Status: Published (journal paywalled; NBER w9807 working paper) (checked 2026-10-01). Abstract (p. 1791) — supports: Persistence of returns across a GP's successive funds
4. Skill and Luck in Private Equity Performance. Arthur Korteweg; Morten Sorensen, Journal of Financial Economics, Vol. 124(3), pp. 535-562. Status: Published (paywalled) (checked 2026-10-01). Abstract (p. 535) — supports: High long-term persistence (7-8 percentage point top-bottom quartile spread) controlling for spurious persistence; noisy performance makes top-quartile funds hard to identify
5. ILPA Principles 3.0: Fostering Transparency, Governance and Alignment of Interests for General and Limited Partners. Institutional Limited Partners Association, ILPA, Third edition, released 27 June 2019. Status: Current edition (no 4.0 found as of 2026-10-01) (checked 2026-10-01). p.17 (GP Commitment and Ownership) — supports: Substantial GP equity interest contributed in cash rather than through management-fee waivers or specialised financing facilities; no percentage set

• GP Stakes
• Track Record Attribution
• Fundraising (Private Fund Fundraising)
• Operational Due Diligence (ODD)
• Key Person Clause
• Track Record
• Fund Manager
• First-Time Fund Manager

• 3(c)(1) Fund
• Pre-Seed