Chicago and the wider Midwest reflects a region with a varied investment base. Manufacturing, industrial services, agriculture and distribution sit alongside a large community of family offices, insurance companies and investment managers. AI, crypto-assets and decentralised finance (DeFi) are also part of the discussion about where to invest and how to organise capital. For emerging managers, opportunities range from applying operating experience to established businesses to developing strategies around newer technologies and markets.

The Midwest participates in the same capital cycle as the wider United States. Sponsors compete for investors whose allocation decisions reflect global portfolios, while regional businesses are exposed to financing conditions, trade policy and technology developments extending beyond their local markets. There is a common interest in flexible investment arrangements and careful management of costs, and these priorities create openings for new entrants able to build their strategies and operations around investors’ changing needs.

Fundraising Challenges and Opportunities for New Entrants

The fundraising environment remains challenging. Bain & Company’s 2026 Global Private Equity Report records a 16% decline in global buyout fundraising to USD395 billion in 2025. It also reports that annual distributions remained below 15% of net asset value for four consecutive years. These are global figures, but they provide useful context for the pressures we encounter locally.

For many investors, funds raised around the COVID-19 pandemic, including the 2019 to 2022 vintages, have been slower to return capital than anticipated. This has sharpened attention on distributions to paid-in capital (DPI), which measures how much a fund has returned to investors relative to their contributions. Reported gains on unsold investments do not replenish the cash available for new commitments. Delayed distributions can therefore limit an investor’s ability to support a new manager even when the opportunity is attractive.

For emerging managers, starting afresh can offer flexibility. A new team can design its strategy, investor terms and operating costs around current conditions, including borrowing costs above the lows of the previous decade, disruption from AI and inflationary pressures. Without an existing portfolio or legacy arrangements to accommodate, it may be better placed to pursue opportunities created by those changes. Raising capital remains difficult, but this flexibility gives investors a reason to consider new approaches alongside established relationships.

Research and industry commentary support considering emerging managers, although selection remains critical. Hamilton Lane’s October 2023 analysis found wider return dispersion among emerging managers, with top quartile performers often matching or exceeding established managers’ returns. More recently, Carta highlighted the outperformance of smaller, newer venture funds relative to larger, established funds. Emerging managers may benefit from greater flexibility and the ability to pursue opportunities that would be too small to materially affect a larger fund’s returns. Together, these observations suggest that identifying promising emerging managers early can offer opportunities to outperform large established players.

Specialisation and Operating Value among Emerging Managers

We see younger investment professionals leaving established firms to pursue specialised opportunities and build their own platforms. This is a natural progression that can accelerate when existing funds are not delivering expected results, restricting fresh capital, advancement or the ability to pursue new investments. Independence can give these professionals greater influence over strategy and ownership economics. For investors willing to consider a new team and potentially different commitment sizes, this can provide access to experienced professionals pursuing opportunities that were too small or outside the remit of their former firms.

Among the sponsors advised, pronounced specialisation is a recurring feature. In the Midwest, knowledge of a manufacturing process, industrial niche, distribution network or customer base can inform both the investment case and its execution. Investors want to understand how that knowledge translates into better decisions and measurable improvements. We believe this creates room for managers who can combine sound financial structuring with practical improvements in the businesses they own.

Flexible Structures Beyond the Conventional Fund

We are seeing demand for SMAs, independent sponsor arrangements and SPVs alongside conventional pooled funds. An SMA gives a manager a mandate for a particular investor, while an SPV can organise participation in an identified investment. An independent sponsor typically identifies an acquisition and then assembles the capital required to complete it. For emerging managers, these arrangements can provide a way to generate revenue, establish relationships and build a track record before seeking a larger pooled fund.

For a sponsor acquiring a Midwestern company, raising capital for a known acquisition may be more achievable than first raising a conventional blind pool fund. For a specialist pursuing an AI or digital asset opportunity, an SPV may accommodate investors seeking that particular exposure. For a manager developing a hedge fund strategy, an SMA can support a longer relationship with an investor seeking tailored investment guidelines and reporting. The choice depends on the intended investor base, the expected pipeline and the resources available to manage the arrangement.

For a new manager, an initial mandate can also be a chance to develop reporting and operating processes with an engaged investor. Agreeing the scope of the relationship early can help both parties understand how it might evolve as the strategy grows. The terms should leave room for that development while giving the investor clarity about the capital and resources committed to its account.

Flexibility brings its own commercial questions. The parties need to understand who makes investment decisions, how additional capital will be provided and how fees and expenses will be allocated. They should also consider what happens if the investment needs more time or one participant wishes to exit. Addressing these questions early can preserve flexibility while keeping the arrangement understandable and economical to operate.

In our experience, the first substantial investor relationship can shape an emerging manager’s business for years. An anchor investor may seek preferential economics, participation in future opportunities or influence over the mandate. Those terms should be considered against the manager’s ability to attract later investors and sustain its operations. Securing an initial commitment is most valuable when the arrangement also supports the platform the founders intend to build.

Family Offices and Insurance Investors

The Midwest is a source of investment capital as well as operating businesses. Family offices can bring knowledge developed through ownership of businesses, while insurers manage substantial portfolios within a regulated investment framework. Insurers allocate a portion of those portfolios to alternatives, including private equity, hedge funds and real estate, as reflected in the National Association of Insurance Commissioners’ reporting on their investments. Insurance SMAs illustrate how specialised managers can serve institutional investors through tailored mandates.

Private credit also forms part of this investment landscape, including financing for acquisitions and the growth of regional businesses. For specialist managers, tailored credit mandates may offer another way to serve investors with particular return, liquidity and portfolio requirements.

Liquidity and Options for Ageing Portfolios

Liquidity remains a central consideration for sponsors and investors. Secondary sales can allow investors to release capital or adjust exposure by selling existing interests. Continuation vehicles can give existing investors an opportunity to sell while allowing a sponsor and participating investors to retain selected assets. For buyers with available capital and relevant expertise, these transactions can also offer access to established businesses and portfolios with an observable operating history.

For an industrial business undergoing an extended improvement programme, additional time may have a sound commercial purpose. The relevant question is whether that time is likely to produce sufficient value to justify the costs and risks of continued ownership. Investors will examine the valuation, transaction expenses and any changes to fees or performance participation. Bain’s June 2026 report notes that continuation vehicles are becoming harder to execute as investor scrutiny increases.

We are seeing some activity involving ageing funds and residual portfolios, but believe this work is likely to increase over the coming quarters. Bain’s annual report describes a global backlog of approximately 32,000 unsold portfolio companies valued at USD3.8 trillion. That figure does not mean all those investments are impaired or near the end of their funds’ lives. We believe that pool of existing investments may also create opportunities for specialist buyers able to bring fresh capital, operating attention or a different ownership timetable.

For funds approaching decisions about extensions or winding up, the remaining assets should be assessed individually. The choices may include an orderly sale, a restructuring or continued ownership supported by a defined plan. Continued operation can be justified where there is a credible opportunity to realise more value. Where that case is less convincing, a sale may offer a route to liquidity and help avoid a “zombie fund” that continues collecting fees without meaningful progress towards an exit.

Commodities and Newer Trading Markets

Chicago has a strong community of commodities traders, trading firms and market infrastructure providers. Its experience spans agricultural and energy markets, financial derivatives and newer markets, including prediction markets and digital assets. For managers developing trading strategies, that concentration of talent and practical market knowledge is a regional strength. We see opportunities for new entrants to draw on this community as trading products and investor demand evolve.

AI, crypto-assets and DeFi also present opportunities for managers with relevant technical and commercial knowledge. These categories should not be treated as interchangeable: investing in an operating company differs from holding a digital asset or participating in a financial protocol. Investors need to understand what the vehicle owns, how assets are held and where the expected return comes from. Familiarity with the technology is only one part of evaluating the investment and its operational risks.

We believe the current administration’s approach is moving towards fewer regulatory barriers and greater clarity for digital asset businesses. The Securities and Exchange Commission’s March 2026 interpretation and its proposal for Regulation Crypto Assets, announced on 18 August 2026, illustrate that direction. The proposal includes exemptions for certain offerings, but proposed changes should not be treated as rules already in force. The framework is still developing, and greater clarity in one area does not resolve every question affecting crypto, DeFi or prediction markets.

Cost Discipline and the Evolving Delivery of Legal Services

Investor scrutiny of costs extends beyond management fees. It includes fund formation expenses, administration, transaction charges and the cumulative effect of operating multiple vehicles. The Institutional Limited Partners Association’s May 2026 guidance calls for clearer formation expense caps, greater transparency around legal fees and budgets, and more equitable sharing of overruns. This is consistent with requests we see from clients for more competitive pricing and clearer accountability for legal spending.

Clients increasingly want speed, accuracy and lower or fixed prices. Some ask how counsel uses AI, which tasks it accelerates and how the savings reach them. Our firm uses AI and offers flat fees, with senior responsibility for analysis, project management and drafting. Defining the scope and expected deliverables at the outset helps connect pricing to the work the client actually needs.

The traditional emphasis on manual document production in sophisticated legal work is changing. As technology reduces repetitive drafting and revision, there is an opportunity to make advice more accessible, including to managers launching their first vehicles. Rigorous analysis and review remain essential, and efficiencies vary by task. Clients can nevertheless expect counsel to consider how those efficiencies should affect delivery times and pricing.

Judgement and ingenuity remain central to legal practice as these tools improve. Less time spent on repetitive drafting can leave more room to explore alternative structures, work through commercial choices and find practical solutions. We have found that shift makes practice more engaging and creates scope to serve emerging managers more efficiently. For sponsors and advisers across the Midwest, the opportunity is to combine the region’s operating experience with new ways to organise capital and build investment businesses.