Midsize GP Firm - Capital Raising
To my fellow monkeys working on the GP/Operator side, how are your firms handling capital raising these days?
For some background, firm I work at is a small-midsize Owner/Operator ~$1 Billion Gross Assets. Historically have done 90%+ of deals on ownership's balance sheet but have occasionally have partnered with REPE firms to get some bigger deals done. Lately feel like we've had to pass on more stuff due to capital constraints than we'd like, so looking to raise outside equity. Experience raising from MM REPE firms has been a mixed bag so far, nice to get a single check but they squeeze you on fees/promote and some are PITA on the operations side. On the flip side I've seen some ridiculously good terms that people are getting from country club money but tough to do that at scale.
So where do your firms source capital? REPE? Crowdstreet? Family Offices? Direct (Individuals / RIAs)?
Fund or more deal by deal?
Country club deals aka accredited investor deals are great as its cheaper cost of capital vs. that of a family office or REPE, but the problem is the check sizes are super small. If you're trying to raise $25M on accredited investors, you will have a super tough time. These country club deals are for smaller assets. Given that your firm has a $1B AUM, the accredited route may not be the best option for you as you'll be pulling teeth trying to convince 200+ people to invest a $100K-$200K into your deal.
How are people getting 200+ investors in at the small check sizes?
Bump. Anybody have success getting in front of pension funds/SWF/etc.?
the upfront work required to partner with pensions/SWFs is wild. for an operation your size, it would likely take a couple of employees multiple months of dedicated work to get your internal operations, policies, systems, etc. up to snuff before you could even start checking the boxes these funds need checked. major upfront investment. but if you succeed, you have unlimited capital, albeit from a partner who now controls you.
Care to expand on that? Just curious what that looks like - I assume alot of lawyers and accounting reports?
Larger mid-size shop here - we do both funds and syndication, our capital sources vary depending on deal size/profile (smaller value-add deals we typically go through HNWIs, big ticket items or more core/core plus deals through institutions).
Ultimately it depends on your needs. Raising from individuals is way more administrative work, way more work from a fundraising perspective in some ways more IR burden, and your capital can be less reliable when it comes time to pay up, but you can secure far better terms as a GP and don't have somebody sticking their nose in every decision you make. Flipside with institutions is you know the money is there when you need it, you only have to go to one source, they are generally pretty savvy, and once they're comfortable with you they generally go mostly hands off, but they require far more constant communication and because they have leverage from the huge cheques they're writing the economic terms are less favorable.
Thanks for the intel. How much did you guys raise from each bucket this past year? How big is your IR / Equity Capital Markets team? And when you say institutional, are you going direct to a pension fund/family office or dealing with an intermediary (REPE firm)?
I don't have exact numbers but in past year I'd say ratio was pretty darn close to 50/50. Our total AUM is also approx 50/50. Team is quite small, 5 people.
We go direct to institutions 95% of the time. Have a couple deals with REPE firms in them but mostly direct.
There are a lot of sponsors that raise only HNWI capital that are way over $1B in gross assets. It’s definitely not the easiest route to get to that number, but if you can, it’s a much better life as a sponsor to do it that way. Better fees, better splits, and absolute control over deals.
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