Why First-Time Fund Managers Struggle to Launch
I am often asked: "What makes launching a first fund so difficult?" Fair question. Emerging managers now capture just 15.7% of private capital raised, down from 23.4% a decade ago.
This guide walks through the main barriers facing new managers, from regulatory onboarding to operational complexity and investor readiness. You'll find practical frameworks to understand the obstacles and, more importantly, how structured support can help you navigate them.
Key Takeaways: Why First-Time Fund Managers Struggle to Launch
-
First-time managers face regulatory, operational, and fundraising barriers that established firms have already solved.
-
FCA compliance and AIFMD requirements demand specialist expertise that new managers rarely possess in-house.
-
Investors increasingly favour managers with institutional-grade infrastructure, creating a catch-22 for emerging teams.
-
Sapphire offers fund incubation services designed to remove administrative burdens and accelerate launch timelines.
-
Understanding these obstacles early allows you to build the right partnerships before your fundraise begins.
What Is Fund Incubation and Why Does It Matter?
Fund incubation refers to the structured support services that help new managers launch investment vehicles. These services typically include regulatory hosting, compliance oversight, operational infrastructure, and investor administration.
For first-time managers, incubation addresses a fundamental problem: institutional investors expect institutional-grade operations from day one. They want to see robust governance, clear reporting frameworks, and regulatory compliance before committing capital. Building all this independently requires significant time, expense, and expertise.
Drawing on our extensive experience at Sapphire, we've identified that the managers who launch successfully are those who secure the right operational foundation before approaching investors.
What Are the Main Regulatory Barriers for New Fund Managers?
- FCA Authorisation and Compliance Complexity
In the UK, fund managers must navigate the Financial Conduct Authority's (FCA) authorisation process. For Alternative Investment Fund Managers (AIFMs), this involves demonstrating adequate capital, appropriate governance, and compliance infrastructure. The FCA application process alone typically takes six to twelve months.
The requirements extend beyond initial approval. Ongoing obligations include prudential reporting, conduct of business rules, marketing restrictions, and anti-money laundering procedures. A study from Hawksford notes that new managers often underestimate the administrative and regulatory burden, particularly if they've come from established firms with dedicated compliance teams.
- AIFMD and Cross-Border Considerations
The Alternative Investment Fund Managers Directive (AIFMD) imposes additional requirements for managers targeting European investors. These include depositary arrangements, leverage limits, and detailed reporting to regulators. For first-time managers targeting international capital, the compliance burden multiplies.
What I believe is essential: understanding your investor base before selecting your regulatory pathway. A fund targeting UK retail investors through SEIS or EIS has different requirements than one targeting institutional capital through a GP/LP structure.
Research indicates that 93% of limited partners (LPs) consider track record length "somewhat, very, or extremely important" when evaluating managers.
Why Do Operational Challenges Block So Many First-Time Launches?
Infrastructure Costs and Resource Constraints
Building operational infrastructure from scratch requires substantial capital. Fund administration, legal counsel, auditors, custodians, technology platforms, and office expenses add up quickly. According to research from Altss, first-time managers should budget for 24 months without management fee income, yet many underestimate these costs.
The challenge becomes circular: you need infrastructure to attract investors, but you need investors to fund infrastructure. This resource constraint causes circa 21.4% of Fund I efforts to fail before reaching first close.
Bandwidth Limitations and Focus
New managers often wear multiple hats: sourcing deals, managing investor relationships, handling compliance, and overseeing operations. This bandwidth constraint prevents focus on what generates returns, which is identifying and supporting portfolio companies.
At Sapphire, we regularly work with individuals who recognise that outsourcing operational functions allows them to concentrate on investment activities. The removal of administrative burden through a trusted partner creates space for the work that matters most.
What Investor-Related Obstacles Do First-Time Managers Face?
The Track Record Paradox
Research indicates that 93% of limited partners (LPs) consider track record length "somewhat, very, or extremely important" when evaluating managers. This creates an obvious challenge for first-time managers. How do you demonstrate a track record when you haven't managed a fund before?
The answer lies in attribution. LPs increasingly accept track records from prior roles, provided you can clearly document your specific contribution to investment decisions and outcomes. The GIPS Standards Three Portability Tests require that substantially all decision-makers move to the new firm, strategy continuity exists, and complete documentation transfers.
Extended Fundraising Timelines
First-time fund raises now average 18 to 24 months, nearly double the timeline from 2022. This extended period tests personal finances, team stability, and resolve. Managers who exhaust their runway mid-fundraise face impossible choices.
Planning for this reality is essential. Personal financial preparation, team retention strategies, and realistic milestone setting all contribute to successful outcomes.