It often comes as a surprise to emerging managers to learn that most new funds do not survive their first five years.
At Windstream, we have decades of experience in asset management, and have seen over that time that, regardless of fund structure and strategy, investment skill alone rarely determines who raises institutional capital.
Institutional allocators have always conducted thorough due diligence, and not only on the investment product. The standard they look for—across the organization—is high, and first-time managers are held to it as much as any other.
The three priorities below reflect what we believe separates the managers who raise institutional capital from those who, despite genuine investment skill, do not.
Investment managers who launch funds are experts in their craft. What they have generally not had occasion to develop is the same depth of knowledge about running the operational infrastructure of a firm.
A chef who creates an exceptional dish does not automatically know how to source ingredients, manage a kitchen, or keep the books. The product may be outstanding, but the business around it has to function too.
Running a fund at an institutional standard requires competence across a broader set of activities than many emerging managers expect. These range from fund administration, legal counsel, audit, and tax to the day-to-day operations of the investment firm itself: finance (financial statements, reporting, and audit support), trading operations (documentation, reconciliations, process re-engineering), compliance (regulatory program, internal controls, and SEC obligations), and fund launch capability (vendor selection, OMS/PMS, and due diligence preparation).
Institutional allocators will review all of it.
For emerging managers, the answer is not to develop expertise in each area independently. Having worked with close to a hundred emerging managers at Windstream, we know that those who build enduring organizations make it a priority to assemble the right combination of team members, partners, and vendors, each with specialized expertise, leaving managers free to focus on what they do best.
When launching a fund, the natural focus goes to the investment product and the track record. That focus is appropriate. The mistake we have seen consistently over the years is the assumption that follows from it: that fundraising is a later-stage activity, something that can begin once the performance record is established.
Building the organizational foundation is not separate from fundraising. It is the precondition for it.
Managers who approach institutional allocators without that infrastructure in place find that conversations rarely progress, regardless of how strong the performance record is.
The managers who raise institutional capital tend to treat building the organization as a day-one priority, running it alongside the investment work. Starting fundraising from the outset means the organizational foundation is built with a clear understanding of what institutional investors require.