The emerging-manager shakeout everyone keeps predicting is not coming. It already happened, and the numbers are blunt about it.
First-time fund formation peaked in 2022 and fell to roughly 21% of that peak by 2024. Emerging managers raised about $15 billion across 245 funds that year, a fraction of the boom. Meanwhile the managers who launched into the frothy 2020–2022 window are struggling to raise a second fund at all, because they have no exits to show and the market that made their first close feel like validation has gone.
So the interesting question is not whether a sorting is coming. It is who the sorting is separating, and how a limited partner is supposed to tell the two groups apart before the market does it for them.
I think of it as tourists and locals.
The tourist
A tourist raised their first fund because the moment made it possible. The thesis was six months old and shaped by whatever was hot. Most of the LP base was personal network rather than institutions. There was no operating history through a downturn, so the first markdowns were the first real test, and a lot of them did not pass it.
There is a Gulf-specific version of this that I watched closely. Between 2021 and 2023, Dubai became the place you went if you wanted access to Gulf capital. The conferences multiplied, the "excited to announce" posts came weekly, and family offices were taking a dozen meetings a day. For a while the tourists and the locals were genuinely hard to tell apart, because everyone was new to the room and everyone claimed a relationship with regional LPs.
The tell was always the same phrase: some version of "I've always wanted to be a VC." Locals do not say this. They say they kept doing the work and eventually someone asked them to formalise it.
The local
A local was in the ecosystem for years before the fund existed. The first fund was a formalisation of what they were already doing, whether that was angel investing, advising founders for equity, or operating. The thesis was earned from watching more than one cycle rather than constructed from one market. And the LP relationships predated the fund, so the first close was a conversion of trust built over years, not a cold sale.
The distinction that matters underneath all of this is that a local's advantages compound and a tourist's do not.
Deal flow compounds. A tourist sees the deals everyone sees, the ones that arrive through warm intros and syndicate platforms. A local sees deals before they are deals, because founders came to them as advisors first. Reputation compounds. A tourist has conference appearances; a local has founders who take their call at eleven at night because of what happened in a previous company. LP trust compounds, and it is the sharpest gap of all: a tourist is fundraising, a local is converting relationships that already exist, and the difference in velocity is enormous.
In the Gulf, the sorting is now visible. The managers still getting meetings in 2026 are disproportionately the ones who were building relationships there in 2018 and 2019, before Dubai was the narrative. They were not chasing the capital. They were already adjacent to it, and when the window opened they were ready. A good number of the tourists are back in London or San Francisco explaining that the Gulf did not work out.
What this looks like from the LP side
None of this helps unless it turns into questions you can actually ask, so here are the ones that separate the two groups.
Ask about 2022. What did they do when the market turned? If they launched in 2023, what were they doing during the previous year's drawdown? A local has an answer that involves staying in the work. A tourist changes the subject.
Ask for the story of the first LP. If the first commitment came from a decade-long relationship, that is a local. If it came from a pitch, that is a tourist, and the whole base probably looks like that.
Ask what the pipeline looked like before the fund. Were they already investing through angels or SPVs or advising for equity, or did deal flow begin the day the fund was announced?
Check whether the thesis holds still. AI in 2023, defence in 2024, climate in 2025 is not a thesis, it is a subscription to whatever is trending, and it tells you exactly which group you are dealing with.
And the test underneath all the others: would this person still be doing this work if they could not raise a fund? The local would. That is the whole difference.
The sorting is the feature
The uncomfortable part is that the shakeout is not a problem for the emerging-manager ecosystem. It is the system working.
There is a reason the sub-$100 million funds that survive are worth paying attention to. Funds under $250 million tend to outperform larger ones on net IRR, and the effect is strongest at the smallest end, which is exactly the range a genuine emerging manager occupies. The tourists leaving does not weaken that. It concentrates it. Every manager who quits after Fund I makes the survivors' compound advantages a little more valuable and their next raise a little easier.
So the LP question is not how to avoid the shakeout. It already ran. The question is whether you can recognise a local early, while the tourists are still crowding the room and making everyone hard to read, and back the people who were there before the conference badges existed.
The badges are getting cheaper. The relationships are not.
Fund-formation figures from VC Lab's state-of-venture analysis and Carta and Preqin fund-performance data: first-time funds down to roughly 21% of the 2022 peak by 2024, ~245 emerging-manager funds raising ~$15B, and sub-$250M funds outperforming on net IRR. The Gulf observations are the author's own. The framing is intentionally uncredited: a widely-shared "tourists versus locals" formulation about cities is often attributed online, but I could not verify a single original source, so it is presented as a frame rather than a citation.
