Emerging Manager

Each of the three public pension programs reviewed below writes its own test, and a firm can qualify under one program and not under another. A separate federal line, the Investment Advisers Act exemption for private fund advisers with less than $150 million in assets, describes the regulatory position of many first-time managers.

Mechanism

Three public programs show how the test is built. The California Public Employees’ Retirement System (CalPERS) states that it “generally define[s] emerging managers as newly formed or relatively small firms.” For private equity and private debt, its page sets a fund size “equal to or less than $2 billion dollars” and a track record of a “first, second, or third institutional fund.” For global equity and global fixed income, the test is instead “AUM totaling less than or equal to $5 billion dollars.”

The New York State Common Retirement Fund publishes no dollar threshold on its definition page. It describes a “Universal Definition” of characteristics, including majority owner-management and a “verifiable successful track record in the proposed strategy.” Its life-cycle guidance says a seed and early stage firm “typically has managed money for institutional investors less than five years.”

The Teacher Retirement System of Texas (TRS) writes the test into its Investment Policy Statement, adopted May 1, 2026. In general, emerging managers are “newer, independent private investment management firms that manage less than $3 billion or have a performance track record as a firm shorter than five years, or both,” and whether a firm qualifies “depends on all of the facts and circumstances.” TRS may not exceed 40 percent of the size of a private equity fund raised by an emerging manager at the time of its Internal Investment Committee’s approval, except for investments made through a fund-of-funds mandate.

The regulatory line. Section 203(m) of the Investment Advisers Act directs the Securities and Exchange Commission to exempt from registration an adviser to private funds that acts solely as an adviser to private funds and has assets under management in the United States of less than $150,000,000. Rule 203(m)-1(a) applies the exemption to a U.S. adviser that acts solely for qualifying private funds and “manages private fund assets of less than $150 million,” calculated annually. An adviser relying on it is an exempt reporting adviser and must file reports on Form ADV under Rule 204-4.

Section 203(l) is a separate exemption for advisers solely to venture capital funds as the Commission defines the term, and its statutory text sets no dollar ceiling.

Worked Example

Consider a hypothetical $100 million fund that is the manager’s first institutional fund. Form ADV Part 1A Instruction 5.b requires a private fund’s regulatory assets under management to include the fair value of its assets and the contractual amount of any uncalled commitment. Suppose $40 million of commitments have been called and invested, the investments carry a fair value of $48 million, and $60 million remains uncalled. Private fund assets are $48 million + $60 million = $108 million, which is $42 million below the $150 million line in Rule 203(m)-1(a).

The same fund meets CalPERS’s $2 billion fund-size ceiling as a first institutional fund, and a manager with $108 million is under TRS’s $3 billion figure. If the manager then raises a second $100 million fund, the rule measures the adviser’s total private fund assets, so, with the first fund unchanged, $108 million + $100 million of new uncalled commitments = $208 million, above the line.

Rule 203(m)-1(c) requires private fund assets to be calculated annually in accordance with General Instruction 15 to Form ADV, so the adviser reports that figure on its next annual updating amendment. An adviser that has complied with all exempt reporting adviser requirements then has up to 90 days after that filing to apply for SEC registration and may continue to act as a private fund adviser during that period (Release IA-3222, p. 165; General Instruction 15 to Form ADV).

What It Means for a Limited Partner

The classification is an eligibility test for a dedicated program; none of the three definitions rates the manager. Because thresholds differ, an allocator reads each program’s own definition: CalPERS counts funds, TRS counts firm age and assets, and New York evaluates qualitative characteristics. Two features of the public record help an allocator check a first-time manager. An exempt reporting adviser still files Form ADV, and the SEC’s adopting release states that the Commission may examine such advisers’ records and that they may need to register with state securities authorities. The TRS policy says an emerging manager should be registered as an investment adviser if registration is consistent with industry practice or required by law.

New York’s mid and late life-cycle stage lists “increased breadth of ownership” and “reduced key person risk,” which places ownership concentration and key person risk among the matters New York tracks as a firm matures. The Institutional Limited Partners Association states on its template page that it is developing Due Diligence Questionnaire modules for small and emerging managers.

In Life Sciences and Healthcare

None of the three definitions contains a sector test. CalPERS counts institutional funds, TRS measures firm age and assets, and New York counts years of managing institutional money, so a life sciences manager is classified on the same terms as any other. In this sector the clinical calendar is long: BIO, Informa Pharma Intelligence and QLS Advisors report an average of 10.5 years for a Phase I asset to reach approval (BIO, 2011-2020). The TRS test refers to a track record shorter than five years, and New York’s seed and early stage guidance to less than five years of managing institutional money.

Governing Authority and Sources

• CalPERS, Emerging & Diverse Manager Program (dated March 2, 2026; read October 10, 2026).
• New York State Common Retirement Fund, Emerging Manager Definition and Life Cycle (no printed date; read October 10, 2026).
• Teacher Retirement System of Texas, Investment Policy Statement, Article 7 (adopted May 1, 2026).
• 15 U.S.C. 80b-3, Investment Advisers Act section 203(l) and (m).
• 17 CFR 275.203(m)-1, Private fund adviser exemption (eCFR current as of October 8, 2026).
• 17 CFR 275.204-4, Reporting by exempt reporting advisers.
• SEC, Instructions for Part 1A of Form ADV (SEC 1707, 07-24), General Instruction 15 and Instruction 5.b.
• SEC, Release IA-3222 (2011).
• BIO, Informa Pharma Intelligence and QLS Advisors, Clinical Development Success Rates 2011-2020 (February 2021).
• ILPA, Due Diligence Questionnaire and Diversity Metrics Template.

Frequently Asked Questions

What is an emerging manager program?

It is an institutional investor’s dedicated effort to commit capital to newer or smaller managers. New York invests with emerging managers directly or through managers of managers or program partners, and CalPERS says fund of fund advisors have traditionally operated its programs.

What counts as an emerging manager in private equity?

It depends on the program. CalPERS requires a fund of $2 billion or less that is the manager’s first, second or third institutional fund. TRS counts a firm managing less than $3 billion or with a track record shorter than five years. New York applies qualitative characteristics and publishes no dollar figure.

Does a first-time fund manager have to register with the SEC?

Not always. An adviser that acts solely for qualifying private funds and manages private fund assets of less than $150 million may rely on Rule 203(m)-1 and instead file Form ADV as an exempt reporting adviser. Uncalled commitments count toward the total, and state registration may still apply.

Related Reference

This entry belongs to the growth equity reference set. Related entries: Family Offices in Private Equity, Key Person Provision and Due Diligence Questionnaire (DDQ).