Although the number of diverse-owned alternative investment firms is growing, the newest entrants continue to face headwinds, according to data from Fairview Capital Partners.
The firm’s annual “Woman and Minority-Owned Private Equity and Venture Capital Firms” report found that the number of diverse managers in the market increased to over 1,000 in 2024, from 907 in 2023. Qualifying firms have a majority ownership of more than 50% among women and ethnic minority groups, and are based in and primarily invest in the U.S.
Since 2019, the number of minority- and women-owned firms in the market raising capital has grown by at least 20% annually, with 2024 recording the largest year-over-year increase in the past five years. Among the 537 diverse firms in the market raising capital, 284, or 53%, were in their first round of fund raising.
“The continued rise in first-time funds in market is a notable reflection of current dynamics in the private markets,” said Aakar Vachhani, managing partner at Fairview Capital, in a March 25 news release. “We’re seeing sustained conviction from talented managers eager to launch their own firms, with increased spin-out activity from larger, more established platforms.”
But at the same time, many of these inaugural funds are taking longer to close, Vachhani added. About 76% of the firms analyzed focused on venture capital, an asset class that “often requires longer investment horizons and patient capital,” the report noted.
The median target fund size for these managers was $75 million, marking a significant decline from a consistent $100 million the preceding two years.
In addition to the increasing amount of first-time fund managers — which tend to target smaller fund sizes vs. subsequent funds — the report cited broader declines in private equity and venture capital fundraising for the drop in target size.
For diverse managers pursuing a venture strategy in 2024, the average target fund size was $93 million, compared to the industrywide average of $151 million. As for private equity, diverse managers had an average target size of $511 million — but closed on less than the average industrywide close of $1 billion.
Continuing a trend from 2023, the large gap between diverse firms — which tend to be small, new and emerging — and the broader market comes as limited partners focused their allocations on larger, more established managers.
In 2024, about 58% of diverse firms in the market were continuing a fundraise from the prior year, up from 50% in 2023. While about 44% of diverse firms closed a fund at or above target between 2014 and 2021, roughly 24% of diverse firms were able to do the same between 2022 and 2024.
