What Emerging Managers Overlook (and LPs Don’t Forgive) in the Fund Launch Process
LPs assess operational readiness early. We look at the fund launch gaps that often raise concerns for emerging managers.
Launching a first-time private capital fund is one of the most demanding transitions an investment professional can make. Emerging managers in private equity, venture capital, or private credit often bring strong investment credentials but far less experience in building and operating a regulated fund structure. The operational burden of launching a fund is at risk of being underestimated, particularly by teams spinning out of established firms where legwork like compliance and reporting might have previously been taken for granted.
Limited Partners (LPs) and regulators, however, do not make allowances for inexperience. Early-stage missteps at launch can shake LP confidence before capital is fully raised, sometimes being sufficient for LPs to decline a commitment altogether.
This caution is structural rather than stylistic. Research into global LP allocation behaviour consistently shows that fewer than half of institutional investors are even willing to consider first-time funds. Among those that do, the dominant concern is not strategy or market conditions, but the operational and career risk of backing an unproven management firm. LP due diligence focuses heavily on organisational stability and evidence of institutional discipline from day one. Where these are missing, the perceived risk often outweighs any potential return premium.
But, it’s easy to intercept these potential setbacks with the right knowledge, processes, and approaches to fund launch. Today, we will examine the most common areas that emerging managers overlook during fund setup and launch and why LPs are unwilling to forgive these lapses. Drawing on Belasko’s experience supporting first-time and early-stage managers, it highlights where operational gaps typically arise and how they can be addressed before they become credibility issues.
From an LP perspective, weak operational foundations are not viewed as a temporary issue. They are interpreted as an indicator of how the manager will behave under pressure. Operational immaturity at launch raises immediate concerns around risk management, compliance culture and the ability to scale responsibly.
A frequent mistake among first-time managers is treating fund launch as a finite fundraising exercise rather than the establishment of an ongoing business. Operational planning is deferred, with the assumption that systems, processes and controls can be added later once capital is raised.
In practice, this “figure it out later” approach quickly collapses. Once the first close occurs, the fund immediately incurs accounting, reporting, compliance and governance obligations. Managers who have not budgeted for professional administration will find themselves overwhelmed, diverting time away from fundraising and deal execution to deal with operational firefighting.
Fund formation regulatory compliance is another area commonly underestimated. Even managers operating under lighter regimes are expected to demonstrate sound controls from day one. LPs expect to see documented AML and KYC procedures, codes of conduct, valuation policies, data protection controls and clear responsibility for compliance oversight.
Emerging managers sometimes delay formalising these frameworks, assuming that limited scale or early-stage status reduces regulatory exposure. In reality, LP operational due diligence processes explicitly test whether credible compliance infrastructure is in place at launch. An inability to evidence this is often a deal-breaker.
Sometimes, first-time managers rely on spreadsheets, personal email accounts and disconnected tools to manage commitments, onboarding and reporting. While workable at very small scale, these approaches do not withstand scrutiny from institutional LPs and introduce unnecessary risk.
Manual processes increase the likelihood of errors in capital calls, investor records and reporting. They also raise concerns around data security and scalability. LPs increasingly expect institutional-grade systems, even from smaller or emerging managers, and incorporating more digitisation and automation is in the future of all fund administration.
How to Avoid This Pitfall
Emerging managers should approach launch as the creation of a regulated operating platform, not a one-off fundraising exercise. In practice, this means putting core operational building blocks in place before first close:
Appoint fund administrators, compliance advisors and other key providers during formation, not after capital has been raised.
Budget upfront for fund accounting, investor servicing, compliance, and audit support, rather than assuming these can be absorbed internally.
Establish clear timelines and responsibilities covering:
While this approach may modestly extend launch timelines or increase upfront costs, it materially reduces the risk of operational disruption, regulatory issues, or reputational damage once the fund is live.
Fund governance is often treated as secondary to fundraising and investment terms. First-time managers may not establish formal oversight structures, advisory committees, or clear decision-making protocols, particularly around conflicts of interest and valuations.
LPs are particularly sensitive to governance arrangements because they directly mitigate non-investment risks. Industry research on conducting fund due diligence shows that instability within the GP team, unresolved conflicts, or poorly defined decision-making authority are among the most common reasons LPs decline commitments to first-time funds. Even minor governance gaps can signal a heightened risk of future disputes or breakdowns in partnership cohesion.
Inexperience can also lead to suboptimal fund terms. Some emerging managers concede overly aggressive economics or control rights to early investors to secure anchor commitments, without fully understanding the long-term implications. Others adopt template documentation without tailoring it to their strategy or operating model.
These issues may not surface immediately, but can complicate operations, impair future fundraising or create governance disputes. LPs are highly sensitive to fund terms that appear misaligned with market norms or expose them to unnecessary risk.
Choosing a fund domicile based on convenience rather than LP preference is another common oversight. Jurisdictional choice affects regulatory oversight, tax treatment, reporting obligations and investor eligibility. Selecting an inappropriate structure can result in additional vehicles, feeder funds or restructurings after launch, all of which undermine confidence.
Launch timing sends a deliberate signal to LPs. Evidence from research on funds launched during booms shows that vehicles launched in overheated markets tend to underperform over the long term, raising concerns that managers may be responding to fundraising opportunity rather than disciplined investment conviction.
Sophisticated LPs therefore assess not just what a fund is raising for, but when it is being launched. They look for evidence that the manager has stress-tested assumptions, planned for downside scenarios and established conservative valuation and loss-recognition policies.
Managers who appear reluctant to recognise write-downs early, or whose valuation frameworks lack independence and clarity, risk eroding trust before the fund is fully deployed (more on this below).
How to Avoid This Pitfall
Governance should be designed deliberately at inception, with the same level of attention as fund economics and fundraising strategy. For emerging managers, this involves making a number of foundational decisions early and documenting them clearly:
Taking a deliberate, LP-led approach to governance and structure at launch reduces the risk of future constraints like restructurings or credibility issues once the fund is operating.
Investor onboarding is routinely underestimated. Collecting subscription documents, tax forms and KYC information across multiple jurisdictions is administratively intensive. Emerging managers often fail to allocate sufficient time or resources, resulting in last-minute scrambles, incomplete files or delayed fund closings.
From an LP perspective, poor onboarding is a warning sign. Repeated requests for documentation or confusion around AML requirements suggest a lack of operational control and raise compliance concerns.
First-time managers, particularly those juggling fundraising and deal execution, may deprioritise regular LP communication. Updates are provided only when required, and reporting cadence is not clearly established.
LPs, however, value predictability and transparency. Inconsistent communication creates uncertainty and erodes trust, even if underlying performance is sound.
Mistakes in capital call notices or distributions are among the fastest ways to damage LP confidence. Errors in calculations, incorrect wire details or inconsistent notices suggest inadequate controls. For a first fund, even a single error can have outsized reputational impact.
How to Avoid This Pitfall
Investor onboarding and communication should be formalised from the outset, with clear ownership and repeatable processes rather than ad-hoc coordination. In practice, this means putting the following in place at launch:
Formalising onboarding, capital flows and communication reduces the risk of errors, supports regulatory compliance and reinforces LP confidence from first close onwards.
LP confidence is shaped as much by transparency as by performance. Research into fund disclosure practices shows that delayed recognition of losses or inconsistent valuation narratives materially undermines LP trust, particularly for emerging managers without an established track record. Where managers struggle to produce timely, coherent performance data, LPs may infer weaknesses in internal controls rather than temporary resourcing constraints.
Emerging managers often underestimate how much information LPs expect post-close. Sparse reporting or minimal disclosures may technically meet contractual obligations but fall short of institutional expectations.
LPs increasingly expect detailed quarterly reports, clear fee and expense transparency, and timely audited financials. Managers who provide only basic updates risk being perceived as opaque or disorganised.
Internally, some first-time managers lack good enough performance tracking capabilities. When LPs request ad hoc analyses or performance metrics, managers struggle to respond quickly or confidently. This undermines credibility and raises concerns about financial oversight.
How to Avoid This Pitfall
Reporting expectations should be defined during fund formation, not after the first close. Emerging managers need to be explicit about what they will report, when, and how it will be delivered:
Attempting to minimise costs by handling fund administration, accounting, or compliance internally is a common but risky decision. While it may appear cost-effective initially, it often leads to errors, inefficiencies and distraction from core investment activities.
LPs are highly attuned to this risk. Many explicitly ask which administrator and auditor a fund has appointed as part of their due diligence. Fund managers might even switch fund administrators to satisfy the expectations of their LP.
Using multiple disconnected service providers without clear coordination can also create issues. Data inconsistencies, duplicated requests, unclear accountability - these are common outcomes. LPs quickly detect operational fragmentation through slow responses or inconsistent information.
Compliance obligations, such as regulatory filings, AML oversight, and reporting, are often underestimated. Missed deadlines or incomplete filings can escalate quickly and damage LP confidence.
How to Avoid This Pitfall
Service provider selection should be treated as a core part of fund design, instead of a cost-saving exercise. For emerging managers, the priority is to build an operating model that is coherent and scalable from launch:
This type of joined-up approach to service provider selection materially reduces operational risk and presents a more institutional profile to LPs from first close onwards.
Backing emerging funds is ultimately a judgement founded in risk management. Investment talent may be assumed, but operational failures are interpreted as signals of future behaviour. In this context, operational immaturity is not forgiven because it introduces uncertainty that LPs cannot diversify away.
The most successful early-stage managers recognise that launching a fund is about building a sustainable management business. Emerging managers can avoid common pitfalls and position themselves as credible long-term partners, simply by addressing governance, compliance, reporting, and investor servicing with the same rigour applied to investments.
Belasko’s experience supporting first-time and emerging fund launches consistently shows that operational discipline at inception sets the tone for the fund’s entire lifecycle. Managers who invest early in getting the “business of the firm” right are better placed to earn LP trust and build a platform capable of supporting future funds.
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