Dos and Don’ts of Raising Non-Flagship Funds
Non-flagship fundraising gains momentum
As demand for access to private markets funds from institutional investors continues to grow, a notable trend has appeared to help meet that demand: “Non-flagship” fund capital raising.
For LPs, investing in non-flagship funds offers the opportunity to build deeper relationships and partnerships with a concentrated list of firms they already know well or, alternatively, the opportunity to get their foot in the door at hard to access GPs.
For GPs that are well-positioned in the market, launching non-flagship funds can help expand their businesses and offer more solutions to their clients, but making that move is not without its risks.
Industry experts weigh in on non-flagship fundraising
Nasdaq Private Fund Solutions recently hosted a virtual event which featured several content sessions designed to help LPs and GPs navigate the complexities of today’s private markets.
In one session titled, The Dos and Don’ts of Raising Non-Flagship Funds, a panel of industry experts from Lazard, Mercer, and Portfolio Advisors offering their insights to GPs considering launching a non-flagship strategy.
Here are some of key takeaways from the panel:
1. One of the biggest drivers for non-flagship fund capital raising is encouragement from investors in GP ownership stakes
These investors view non-flagship funds as a new cash flow stream opportunity for fund managers and there is a correlation between GPs who have external minority owners and those offering new strategies for the first time.
2. In some cases, existing LPs facilitate the development and launch of non-flagship funds
As LPs seek to put more capital to work and grow with their core relationships, some are facilitating non-flagship funds by offering their GPs fresh capital to pursue new strategies. Backing new strategies from their key GP relationships is also a method these LPs are using to secure larger allocations in subsequent flagship fund capital raises.
3. Fund managers must ensure they have all the necessary resources in place before pursuing a non-flagship strategy and communicate effectively with LPs throughout
After raising a new strategy, LPs will pay extra attention to the next few deals made from a GP’s flagship fund. LPs will want to know that the new non-flagship fund is not affecting the core strategy and GPs should take special care to ensure that they are communicating effectively with LPs to ensure they are aware of how resources are being allocated to each strategy.