Allocators are getting patient when it comes to emerging managers’ track records. They’re not getting patient with much else.
The emerging manager universe is maturing faster than allocators are pulling back from it. New research from AIMA and Marex shows investors becoming more willing to back smaller, younger funds even as the operational bar they set keeps rising.
Smaller funds, sooner
The clearest signal in the report published this week is that allocators are willing to put capital behind newer names and trying to get there early. The average minimum fund size investors would consider has fallen to roughly $94m, down from $106m in 2024 and $151m as recently as 2022. Just over half of respondents (54%) said they would invest in a fund with less than a year of track record, while nearly three-quarters would consider a manager running under $100m.
Worth mentioning that this willingness is not unconditional. Investors are still filtering hard for quality. Operational due diligence remains the single biggest barrier to allocating, cited by 86% of respondents, and concerns over strategy drift and illiquidity jumped from 72% to 84% year on year.
Read together, the data points to a bar that has moved sideways rather than down. Allocators will take on more youth and less scale, but not less rigour.
Institutionalisation has a price
Managers are responding by building institutional infrastructure earlier than previous vintages did. Average headcount across the survey rose to 9.5 employees and even sub-$100m firms now run average teams of 6.1, up from 5.5 in 2022. But this investment in compliance, risk and investor relations has pushed average breakeven AUM up sharply, to $82.9m from $70.1m in 2024, a rise of almost a fifth in two years.
Smaller managers are absorbing this shift disproportionately. Their total expense ratio sits at 1.11% against a 0.99% market average, even as their breakeven level ($57.4m) stays well below the broader cohort’s. The picture is of firms choosing to run leaner books while still spending earlier on the plumbing allocators now expect to see.
Lawrence Obertelli, head of EMEA prime service sales at Marex, said the findings reflect what his team sees day to day, with emerging managers launching on stronger institutional foundations and allocators responding with more flexibility on size and track record, even as fundraising itself remains hard. Tom Kehoe of AIMA struck a similar note, pointing to investors judging managers increasingly on the quality of the platform and the strategy rather than AUM or history alone, something he called essential to a healthy pipeline of new ideas into the hedge fund industry.
