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real estate private equity fund raise capital

Source: New York Times

 

Over the last several weeks, investors on Sterlinks offered us their thoughts on the best meetings they’ve had with investment managers.

We took their feedback and put together a list of key takeaways for you to keep in mind as you prepare for your next investor meeting.

This is the second installment in our three-part series on how to have a good investor meeting.

This time, we have some general guidelines for navigating your conversations with an investor:

  1. Know your investor: focus your resources on investors who are positioned to be a partner to you.
  2. Related to #1, understand basic guidelines around an investor’s investment policy and current investment mandate.
  3. Be able to convey your team’s strategic focus (and portfolio fit) concisely.
  4. Have a clear idea of what you plan to do.
  5. Understand what you do well.
  6. Be aware of any weaknesses in your platform and/or challenges in the execution of your strategy.
  7. Put your strategic focus in the context of your track record.
  8. If mistakes were made, acknowledge them.
  9. Where possible, explain how mistakes were fixed.
  10. Show that providing information is a priority.

Next: what no one told you about how to have a good investor meeting.

Part 3 will give you the advice you probably didn’t get from previous investor conversations.

This is the Sterlinks blog. Access Sterlinks tools to maximize your in-house resources by visiting http://www.sterlinks.net.

real estate private equity capital raising

Source: New York Times

 

 

 

 

 

 

 

 

 

 

 

 

Throughout April, investors on Sterlinks offered us their thoughts on the best meetings they’ve had with investment managers.  In turn, we put together a list of key takeaways for you to keep in mind as you prepare for your next investor meeting.

First, the absolute basics regarding content to cover in an initial investor meeting, usually with a presentation.

Below are some sections to include in a first presentation to an investor (as applicable to you).

  1. Executive Summary: Summarize the investment opportunity, including firm history, team (investment platform), high-level achievements and other highlights of the opportunity.

  2. Track Record: Recap your investment activity and performance to date. A table summarizing your portfolio(s) is best-practice here.

  3. Investment Opportunity: Provide an overview of the opportunity you are presenting, including macro/micro drivers and trends, favorable market positioning, unique aspects of your platform, etc.

  4. Investment Philosophy: Succinctly describe the strategy that guides your investment process. This can include investment criteria, targeted asset characteristics and tactics.

  5. Investment Process: Review key elements of your investment process, such as sourcing of investments, underwriting, financing, investment committee, asset management and disposition.

  6. Pipeline: Characterize representative transactions either by describing actual opportunities in the pipeline or previous investments that resemble future investment activity your team may undertake.

  7. Case Studies: Offer a sampling of historical investments that demonstrate your team’s skill and experience.

  8. Offering Terms: Outline the essential points of your investment offering, such as the targeted return, commitment period/term, expected leverage, distributions and fees.

  9. Team Biographies: Condense the bios of senior management team members into relevant experience and achievements. This level of detail can also be provided in an appendix.

  10. Appendixes: Extra detail on any section can be provided in an appendix.

  11. All of the above should be kept to a concise and bulletized format.

Next up: best practices for any investor conversation.  Part 2 will address common wisdom for communicating with a potential investor.

Part 3 will get into the feedback that you probably never got from an investor.

This is the Sterlinks blog. Access Sterlinks tools to maximize your in-house resources by visiting http://www.sterlinks.net.

Previously in this space (“Capital Surge” and “Capital Surge: Part 2“) we’ve discussed a couple of interesting conclusions from the Cornell University’s Baker Program in Real Estate & Hodes Weill study the “2013 Institutional Real Estate Allocations Monitor” in relation to more recent news.

A third key take-away from the survey that caught our attention is the shift towards an increasingly global, cross-border investment strategy for many institutional investors. One of the more revealing stats is that Asia-Pacific investors are currently under-invested by 130 bps and also plan to raise their targets by 140-150 bps (i.e., almost 300 bps of their portfolio’s total size will be newly invested in real estate in the near-term).  So, don’t be surprised as this set of investors ramps up their investment quite rapidly.

In addition, despite being not as under-allocated, 38% of North American investors (compared to 24% of investors from Asia-Pacific) revealed their intent to increase their investment into private real estate during 2014, according to data-provider Preqin.  So whether capital placement is driven by need or want the conclusion remains that capital placement certainly will be on the rise, and not only in investors’ back yards.  For instance, of the North American investors seeking investments in the next 12 months, 38% are targeting Europe, which is up from 17% a half-year ago. 60% of Asia-Pacific investors are aiming at Europe, versus 39% a half-year ago.  Those are impressive jumps.

Furthermore, CBRE released a report earlier this week regarding Middle East capital flows into real estate (“In and Out – Middle East”). This research report anticipates a substantial amount of capital flowing from that region over the next decade.  CBRE estimates $180 billion will be invested by Sovereign Wealth Funds (SWFs) and private investors from the Middle East in Europe (80%), the Americas (10%) and Asia-Pacific (10%). The domestic markets don’t have nearly enough volume to absorb the SWF’s investment targets, hence the capital predominantly goes internationally. By comparing this amount to the $45 billion invested between 2007 and 2013 we can begin to understand how significant an increase it is.

Therefore, in order for these investors who are escalating their investment volumes internationally to invest further and further from their front door, it requires technology to bridge that geographic gap.  Evolving technology will allow institutional investors to use their resources effectively from a central base – for both identifying & sourcing investment opportunities as well as organizing multiple due diligence processes efficiently.   Moreover, investment managers can benefit from the same technology by being able to extend their marketing reach to capital partners further afield.

This is the Sterlinks blog. Access Sterlinks tools to maximize your internal resources by visiting http://www.sterlinks.net.

As mentioned earlier in our “Capital Surge” post from a few days ago, the “2013 Institutional Real Estate Allocations Monitor” from Cornell University & Hodes Weill identified some interesting trends in the industry.  We’d like to expand upon another noteworthy takeaway from that study today, including a bit more recent info:

“Institutions continue to shift from direct investing to outsourcing to third-party managers.”

It’s been explained that the flow of capital into real estate will be steady in the coming years. A particularly active set of investors will be small to medium-sized institutional investors (i.e., under $50 billion in global AUM).  One of the likeliest vehicles for smaller players to place capital would be through private funds.  In fact, 66% of investors with under $50 billion in AUM will invest via private funds.

In contrast, investors with over $50 billion in AUM (just 47% in funds) tend to prefer JVs, separate accounts, or going direct.  For example, large insurance companies tend to focus on larger, lower-yielding core deals and have bigger staffs who can more readily manage their investments without 3rd parties.

Meanwhile, the private real estate funds will see a rise in interest coming from these several investors looking to increase their under-target allocations.  As such, investors will soon be competing to place their capital into the best funds and, in turn, investment managers will be fielding more investor requests (e.g., Due Diligence Questionnaires).

Case in point: data-provider Preqin has some revealing stats in its Q1 2014 Quarterly Update that shows 54% of private funds that closed in Q1 2014 either met or exceeded their capital targets.  Furthermore, their May Real Estate Update reveals that funds focused on Europe – one of the most attractive investment regions currently – have met or exceeded their capital raising goals in 72% of the funds that closed in Q1 2014.  While this is up from 2013 and 2012 (57% and 46%, respectively), what is most remarkable is that 29% of the European focused funds exceeded their fund raising goals by more than 25%.  An additional tidbit is that in the past year the average time these funds are marketing has dropped to 17 months from 19 months.

A corollary to this is that mediocre managers may take advantage of the large amount of capital eagerly seeking a home. Investors will need to maintain their rigorous investment review processes in order to place capital in those “best in class” funds. As capital surges into real estate it will likely become increasingly competitive for all.  Parties who are able to use technology to be efficient and maximize their resources during this screening and selection process will have a leg up on their peers.

Check back with us soon as we delve into one of the report’s other key conclusions.

This is the Sterlinks blog. Access Sterlinks tools to maximize your due diligence resources by visiting http://www.sterlinks.net.

The flow of capital into real estate has been picking up momentum, driven by a variety of sources.  At the beginning of the year, Cornell’s Baker Program in Real Estate and Hodes Weill released the results of a study they had conducted entitled the “2013 Institutional Real Estate Allocations Monitor.” Its focus is on the trends of allocation of capital into real estate. Combining the conclusions of that report with updated data from the first two quarters of 2014, we highlight some noteworthy trends in capital flow.

Let’s examine a couple of the study’s key conclusions in today’s context:

  1. Institutions are significantly under-invested in real estate, which is resulting in greater capital flows into the sector.
  2. Institutional allocations to real estate are increasing, indicating that the pace of annual investments will likely continue to accelerate well beyond 2014.

It has been well publicized that capital is currently flowing into real estate as the global financial crisis begins to be talked about more and more in the past tense. It is welcome news that capital will continue to flow into the sector for the coming years. This is being driven largely by two components: (1) being short of current target allocations and (2) the aim to raise those allocation targets further.

The report mentions that nearly 40% of institutions are below their portfolio allocation targets for real estate by more than 100 bps. (Industry estimates of institutional AUM are $60 – $80 trillion.) In fact, we can add more fuel to the fire by comparing the distribution of real estate investors’ current target portfolio allocations to the distribution of their actual allocations in Q1 2014. No surprise on the punch line: allocations are still below targets. Moreover, investors are expected to increase their targets by over 50 bps on average.

One sub-set of investors to note is the institutions with less than $50 billion in AUM, whose current under-allocations are 104 bps on average. Investors with $5-$10 billion in AUM (100 bps below target) and those with less than $1 billion (-125 bps) are the most under-allocated within that group. Therefore, while the report indicates capital’s continued and accelerated flow into real estate, it can be expected that there will be various sources of this capital (as opposed to just a few mega-investors topping up their allocations).

Technology now available will aid these investors in their efforts to boost their real estate investments while allowing them to be thoughtful, conduct thorough due diligence, and manage risk.

Check back with us soon as we delve into some of the report’s other conclusions that we found worthy of discussion at this point.

This is the Sterlinks blog. Access Sterlinks tools to maximize your internal resources by visiting http://www.sterlinks.net.

Last week data provider Preqin reported remarkable findings in the comparison of small vs. large real estate funds.  It turns out that smaller funds have delivered better returns (5.9% on  funds with under $500 million of assets under management, or “AUM”, between 2005-2011) than larger funds (2.3% on funds with over $1 billion AUM).  Surprised?  Well, here’s another nugget: fund managers with less experience have typically performed better than fund managers with several vintages of funds under their belts.

First a couple of caveats, the “less experience” label is for the organization itself, not necessarily the individuals behind the organizations. Presumably, new fund managers are often founded by successful industry veterans coming from larger organizations.  They may bring their savvy and some contacts, but the brand must be built from scratch.  Second, although the “big brand” funds appear to have lower returns than smaller funds, the standard deviation of the returns is lower for those big funds (i.e., less volatile). So, while they may have lower returns, the big funds tend to be more steady.

The question we would like to focus on is how technology in particular can be helpful to smaller funds that may not have dedicated resources for attracting institutional capital.

An institutional investor searching for the best returns may not be aware of or may not have access to these smaller real estate funds who stand to deliver the highest returns.  Likewise, a real estate investment manager raising a smaller fund for a niche or highly localized strategy may not be able to market itself widely to a global set of potential investors.  The same could be said for a new fund manager launching its inaugural fund.

As we’ve stated in this space before, emerging technologies offer a solution for bridging these gaps. Preqin notes: “institutional investors that have the skill and resources to seek out attractive emerging managers have the potential to be rewarded for doing so.”  Indeed, and similar to fund managers, investors who are able to maximize their internal due diligence resources by leveraging technology will be the most productive in capturing attractive opportunities.

This is the Sterlinks blog. Access Sterlinks tools for your capital formation process by visiting http://www.sterlinks.net.

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