How to gage the reputation of a Private Debt Shop?
Hey WSO,
I am an undergrad senior at a top 20 school seeking a real estate finance position and have recently made a connection with someone at a real estate debt shop with a dozen closed-end funds. The most recent one raised ~800 million. This is a potential first job opportunity for me. However, I'm not sure if this fund is reputable or if it will have good exit ops. What are the best indicators? What are institutional fund amount levels? This firm employs ~50 people in management (analysts, associates, directors, MDs, and partners) and has offices in a few major US cities. Those seem like good signs to me. Sorry if the answer is obvious, somewhat new to the world of finance..
$800MM is a pretty good raise. I would look at how many funds they have raised, how many deals they have done, etc. How top heavy is the group. Resumes of the top people.
Stuff like this will give you a good idea. Keep in mind that the quality of the fund won't necessarily translate into the best experience or place to be.
Assuming you get to the interview stage, you can ask about fund level returns, how many investors re-up for the new funds, redemption levels, etc. They may not answer all of them (though they should as a your job will depend on having AUM to support the fund). You can always ask about information about the funds.
In terms of just gauging the reputation, you more need to ask around to industry professionals and do your research online etc.
Ask debt brokers or sponsors who have transacted with them if you have any relationships
Thanks Guys! I think they're legit What is a good amount of funds raised? I'm now talking to two shops One is on their 4th fund expected to raise 500m expected return of 10-11% The 2nd is on their 6th fund which raised 800m Will there be a big difference in the experience gained at each shop? I know that is probably unanswerable but any insight helps.
Interestingly, the 2nd has three offices across the US and employs 50 people. The first only employs 20 people and has 1 office...
Being that I work for a debt fund, one thing I would add is that it is helpful to understand what kind of target returns they are looking for.
If they are trying to do 10-14% they are likely doing riskier deals. If they are trying to do 6-10% they are probably doing less risky deals.
That will impact the types of deals you look at, the types of sponsors you're working with, and ultimately the learning you'll have.
You naturally want to see them having had experience with multiple fund raises, see if they've been around during the downturn and how they navigated through that, and also like others have said, understand who you'll be working with and what their experience is. Who are the members of investment committee and how will you work with them?
Few things I would look into:
What is their minimum deal size? If they are doing deals less than $10/15M you should probably stay away.
Definitely find out their required return. This will tell you if they are lending on stabilized assets, bridge lending or a hard money lender. You want to be in the bridge space, although this is the most competitive right now.
Find out how much they closed last year? Anything above $750M/1Bn is good. If they are over ~$2/3Bn they are very active.
Most importantly, if they are a bridge lender which it sounds like it: find out what their cost of capital on their repo/warehouse lines are. If its somewhere around L+165-200 then they will be competitive in the bridge space.
Wow, this is all so helpful. Thanks! I'm just going to explain more since this has been so enlightening...
Firm A) Late 1980's Does both Debt & Equity Investment 7B AUM (mostly Equity) I'd work on the debt side Loans are all larger than 10 Million Mezzanine, Mortgage, Preferred & Participation equity Speaking to an associate, Seems like he'd be the one sort of mentoring me They've had 6 Funds, 800M the most recent
Firm B) Early 2000's Does both Debt & Equity Investment 2B AUM (mostly Debt) Bridge loans 10-40million.. but I'd be on Equity Side They target Value-Add in secondary markets Speaking to a VP, he'd be mentoring Have had 4 funds, last one was 500M
As you can see with both, I'd be working in the non-core/secondary line of business In the long run, I'd like to go into real estate development Hopefully working for a major private developer or REIT.. My understanding is that equity investment would be a better route for that?
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