In case you missed it, Atalaya Capital was recently acquired by Blue Owl Capital for $450 million. That’s especially noteworthy to us here at Epic Funds because it’s the first time one of the managers we have made multiple commitments to has been acquired by one of the mega firms. It’s also an event representative of how the private markets landscape is changing — specifically the lifecycle of an asset management firm.

If you’re reading this, you’re probably familiar with the traditional lifecycle of a venture capital firm:

• Seed: You get your idea funded
• Series A: You get your product funded
• Series B or later: You get your growth funded
• Monetization: IPO or a strategic sale
  
  

Who provides the capital for each of these stages is well known and terms and structures for financing don’t vary much. This is the established nature of the VC ecosystem. It fosters innovation, rewards investors and founders, and encourages risk taking.

The same cannot be said for asset management or the GP ecosystem.

If you’re trying to build an asset management firm, you’ll soon learn that the opportunities for funding, of the company specifically, are nascent and difficult to come by. At this point, the lifecycle might be described like this:

• Emerging: <$150M
• Growing: $150M - $750M
• Established: $1B - $10B
• Mega: $10B+
  
  

Why is it that this market doesn’t follow the traditional VC market?

One reason is that you don’t typically see the venture-like growth in revenue that allows a firm to raise subsequent rounds of VC. This is because fundraising tends to be cyclical. New funds are typically raised every 24-36 months. Secondly, marketing spend doesn’t provide the same measurable ROI that other business models do. Finally, track record and trust are two important considerations for an LP, and neither of these can be accelerated with an influx of money.

Still, asset management firms can be great businesses over the long term. That will not be overlooked, and I expect that, in time, the right capital partners will engage earlier in the lifecycle, eventually getting us to a place where asset management looks more like the traditional VC model.

 In the meanwhile, industry consolidation continues, which brings up a few questions:

• How much consolidation are LPs willing to tolerate?
• Do these roll-ups into mega managers signal that the strategy has become mainstream and therefore forward return expectations should be lower?
• How will incentives change if AUM becomes more valuable than returns?
• When will we see an Andreessen-like model in asset management? A platform that offers value beyond capital alone?
  
  

We at Epic Funds are excited to see the continuing growth, development, and interest in private markets, but remain cautious about whether the ultimate beneficiary of all of this activity will be the LPs or the GPs who create the biggest mouse trap.