Getting pension fund money?
Had a virtual coffee with a buddy of mine. We were just shooting the shit and talking. He told me prior to Covid they had there first ever successful raise with a state pension fund, they invested like $30M. I asked how they did the raise, he's in Operations so didn't know the details. I have always been fascinated by GPs that are raising money from pension funds and endowments. What type of track record do they look at and how exactly do you get in contact with them. Do they use third party firms to handle the vetting of opportunities? Our LPs consist of primarily HNW individuals, but that can be a pain in the ass sometimes. It would be much easier to have one large check from a state fund or school endowment. Is there a minimum AUM or IRR threshold they require? Anyone here familiar with the inner workings of this?
Short answer is, unsurprisingly, it depends.
Long answer is that the senior team should have a pretty substantial track record. The returns being targeted can vary wildly by LP and even within an LP they have differently priced buckets of capital.
Placement agents are very helpful through the first 3-4 raises, worth the fees for good ones. We've had LPs find us based on our track record which is posted on places like Pitchbook and Preqin.
On the topic of posting your track record, Tower Hunt does this specifically for CRE and is free (vs Pitchbook and Preqin).
Isn't that your real estate social network you've been pitching on here for a few months? Are any LPs or pension funds using it today? Not knocking what you're doing, but the LPs most people want are already using the other services, and if I'm fishing for LPs I want to go where the fish are...
Yes, it's the same product. I'm trying to be respectful of the WSO guidelines and not blatantly hawk it or link to it.
The user base is still pretty small. We're focused on trying to grow Boston and NYC but haven't really made that push yet because the product needed improvement/polish. It's a lot more baked now and we'll hopefully see growth in May.
We have users from Fortress and Walton Street, but honestly the engagement/retention isn't there yet. We're starting to add a lot more news and deal data to try and deliver value.
I have nothing against Pitchbook or Preqin. Was just offering TH as a free resource that has the metadata you need to be found by those groups.
Thanks for the info. We talked to a few placement agents, but they said they were not able to work with us since the size of the raises were small. We typically do one-off deals with each deal being around $8M-$15M. We probably want our first raise to be $10M, but we'd provide 15% of that equity coming from principals. I don't know placement agents that would be willing to work with us for something so small. The other issue is that majority of our LPs are individuals with long time frames, so we rarely sell a deal therefore don't have a full IRR picture. I dont know if this would negatively impact us. However, our CoC is solid. I like the fund model because it gives us discretion to make investments rather than single assets, where we have to go under contract and then try and convince everyone to invest.
For sure. Happy to.
You're going to get zero interest from LPs and placement ages at that size raise. Most of them won't right checks that small. Frankly w/ a target of $10m of equity you should really stick to one-offs. Would maybe start trying to partner with more institutional capital in one-off JVs, then try and make that programmatic, and then move to then fund model. That should help beef up the track record. Won't make sense otherwise with all of the reporting plus the money and energy you spend into raising money.
Agreed with Count_Chocula. As an E&F LP, we never do one-off deals like that. It’d have to be in a fund structure, min probably $250m, with a solid track record and no weird structuring around the economics of the team (i.e., no weird ownership). I’ve only had a couple people pitch us on the kind of stuff you’re talking about but usually that kind of stuff is insanely high leverage too from what I’ve seen (80%+).
In your case it’s not the returns but the structuring. Last thing that I’ll mention which won’t be of much help but anecdotally I’ve only taken two meetings with placement agents in three years. The good funds are oversubscribed and we’re begging them to let us in instead of vice versa.
Edit: we don’t use any third party software for sourcing. 100% comes through the grapevine. Net IRRs range from 12-30% depending on strategy.
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