The Hidden Growth Driver: How Legal and Compliance Infrastructure Will Shape Emerging Managers in 2025

In the increasingly competitive world of private equity, private credit, and venture capital, the “new kids on the block”—emerging managers—face an uphill battle to stand out. Despite the challenges, though, the market is ripe to see more emerging managers in 2025. for a few reasons. For one, there’s a growing trend of senior talent – drawn to entrepreneurial opportunities – leaving large, established firms to start their own ventures. At the same time, investors are diversifying their portfolios, with many LPs looking for emerging managers to bring new perspectives and innovative strategies to the table. Furthermore, these smaller funds can have a regulatory advantage in that they’re able to be more agile in adapting to a shifting regulatory landscape – a crucial asset as scrutiny increases in the private markets around issues like ESG, to name one example.

However, whether they are spin-outs from established firms or industry veterans launching specialized strategies, the reality is that emerging managers often lack the track record of their larger counterparts. While fundraising is tough for everyone, it can be especially challenging for new firms without a proven history. Of course, innovation and strategy are critical to capturing investor interest, there’s another surprising but crucial priority that often gets overlooked: having legal and compliance infrastructure in place.

As investors are drawn to spin-outs for their proven experience within a fresh, independent structure, emerging managers who prioritize building a strong legal and compliance foundation can differentiate themselves. In today’s regulatory landscape, these operational strengths aren’t just a “nice-to-have”—they are the key to securing investor trust and capital. This is becoming even more evident in the market: 36% of respondents to the 2025 Private Funds CFO Insights Survey, conducted in partnership with RSM, indicated that LPs are now placing a greater emphasis on operational and infrastructure capabilities, compared with just 22% a year earlier. These numbers reflect the increasing scrutiny LPs are giving to operational and governance structures, making it imperative for emerging managers to have a robust legal and compliance framework in place.

Here’s why getting right is essential:

1. Investor Trust and Credibility Can Lead to a Competitive Edge in Fundraising

LPs want assurance that their investments are managed transparently and responsibly. A strong legal and compliance framework shows your firm operates with integrity, follows reporting requirements, and stays compliant with regulations. This builds investor confidence, signaling that their capital is protected.

As LPs become more selective, firms that demonstrate top-tier legal and compliance capabilities will stand out. It’s no longer just about having a great investment strategy—it’s about showing that your firm is prepared for the operational complexities of managing funds. Having these systems in place from the start helps mitigate risks, making your firm more attractive to investors.

2.  Risk Management and Protection Can Actually Help Attract Top Talent

Legal and compliance are about more than following the law—they are key to managing risks. Failing to comply with regulations can expose your firm to significant financial, reputational, and operational risks. As your firm scales, these risks become more complex, and having a dedicated legal team ensures you can navigate these challenges effectively.

 This can be a boon for appealing top talent, a critical priority for emerging managers. A solid legal and compliance foundation shows potential hires that your firm is built for long-term success and scalability. Legal and compliance professionals not only mitigate risks but ensure that the firm can scale sustainably, which is crucial for attracting the best talent in a competitive market.

3. Ensuring Long-Term Scalability

What works when managing a few million in assets won’t suffice as your firm grows. Early investment in legal and compliance infrastructure ensures your firm can handle the increased complexity that comes with growth, enabling long-term scalability and sustainability. Here’s how to get it right:

• Hire Experienced Professionals: Bring in individuals with expertise in PE, VC, or credit, along with deep regulatory knowledge.
• Develop Internal Processes: Establish clear governance, compliance, and conflict-management policies aligned with industry standards.
• Leverage Technology: Use regulatory technology to automate compliance tasks, improve efficiency, and stay ahead of regulatory changes.

Additionally, as emerging managers scale, they face growing regulatory scrutiny, particularly from the SEC. The SEC regularly conducts examinations of registered investment advisers, and emerging managers are not exempt. These audits or examinations, often triggered by rapid growth, changes in strategy, or increased investor capital, can highlight compliance gaps that expose a firm to financial, reputational, and operational risks. For emerging managers without a solid legal foundation, this scrutiny can be especially challenging.

The Path Forward

For emerging managers, investing in legal and compliance infrastructure isn’t just a risk management strategy—it’s a growth strategy. By building a solid operational foundation, you’re not only protecting your firm from potential legal pitfalls. but also positioning yourself for success. Firms that prioritize legal and compliance will stand out in the fundraising arena, building investor trust, attracting top talent, and ensuring sustainable growth.

In a competitive marketplace that values both experience and innovation, a well-developed legal and compliance framework can be the deciding factor between firms that thrive and those that struggle. Emerging managers who embrace this early will have a distinct advantage as they grow and scale.