PitchBook News - Emerging managers pull their weight

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The Weekend Pitch

May 5, 2024

Presented by the U.S. National Science Foundation

(Joey Schaffer/PitchBook News)

Risk-averse LPs tend to gravitate to fund managers with a long track record, but are they missing out on potential upside by avoiding emerging managers?

Over the past decade, emerging managers' share of US private market fundraising activity has declined steadily.

In 2023, this figure fell to 12.7%, the lowest share of capital raised by newer fund managers since before 2000, according to our recent analyst note, Establishing a Case for Emerging Managers.

Limited exits in PE and VC over the past two years have exacerbated this reality. With minimal distributions, LPs are working with smaller private market budgets to allocate to new and existing managers.

But, by allocating almost exclusively to established managers, LPs may be missing out on significant potential returns.

This is The Weekend Pitch, and I'm Jessica Hamlin. You can reach me at jessica.hamlin@pitchbook.com or on X @jessicaAhamlin.

Trivia

The race for AI dominance is intensifying, and Middle Eastern nations are driving capital into the technology. In 2023, the region saw a record number of VC deals for generative AI startups, according to PitchBook data. How many deals closed in 2023?

A) 20
B) 34
C) 39
D) 59

Find your answer at the bottom of The Weekend Pitch!

Green steel dominates climate-tech deals

(Anucha Sirivisansuwan/Getty Images)

Even accounting for H2 Green Steel's mega-financing round of over $5 billion, climate-tech deals grew nearly 38% in Q1, buoyed by US federal investment in industrial decarbonization.

Infrastructure, industry and renewable battery deals are hot commodities and median pre-money valuations appear to be rising across the board, according to our latest Carbon & Emissions Tech Report. Climate-tech startups are rapidly developing more sophisticated approaches to permanent carbon-storage solutions, and investors are paying attention.

Our new LP-focused newsletter

The head of real assets at the New Jersey Division of Investment spoke to senior reporter Jessica Hamlin about how he accomplished an overhaul of the plan's fossil fuel-heavy portfolio.

Niraj Agarwal is in the process of offloading the pension plan's legacy investments in upstream oil, gas, mining and metals and making new allocations to digital infrastructure and the energy transition.

Since 2021, when he joined the investment team that manages the some $96.8 billion in assets from the state's seven public pension plans, he has reduced the portfolio's conventional energy exposure from around 60% to 25%.

This story originally appeared in our new Capital Pool newsletter, which features exclusive reporting and commentary on what's driving LP decision-making.

Subscribe here.

The upside of up-and-coming managers

(Utamaru Kido/Getty Images)

Established managers have a significant edge in the downtrodden fundraising market—and with good reason. They have earned trust with LPs and can pin their reputation on real returns.

But there's a risk to overlooking upstarts. The data shows that the top emerging managers in multiple strategies can offer higher upside potential than tried-and-true firms. Our recent analyst note examines performance trends across buyout, venture, real estate and private debt funds.

Quote/Unquote

"The shotgun approach to running diligence has made it very hard [for institutional LPs] to feel comfortable."

—Sid Trivedi, partner at Foundation Capital, speaking to PitchBook News about the challenges of getting LPs to commit to crypto-focused funds.

Stay tuned

Keep an eye out for these insights and research reports coming out this week:

Q1 2024 Enterprise Fintech Report
2024 Global Fund Performance Report (as of Q3 2023)
Q1 2024 Healthcare Services Report
Q1 2024 US VC Valuations Report
Q1 2024 Gaming Report

Trivia

(Ayman Zaid/Getty Images)

Answer: C)

Thirty-nine deals closed for generative AI startups based in the Middle East in 2023, generating $415.1 million. Read more about what driving the trend.

This edition of The Weekend Pitch was written by Jessica Hamlin and Jacob Robbins. It was edited by Heather West and Samantha Steele.

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PitchBook News - Emerging managers pull their weight

Trivia

Green steel dominates climate-tech deals

Our new LP-focused newsletter

The upside of up-and-coming managers

Quote/Unquote

Stay tuned

Trivia

Older messages

Does experience matter?

Zero-carbon push lifts climate tech

LPs return to warming crypto market

The top 50 cities for startups

A case for emerging managers

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