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Pretty sure at most levels, hedgefunds. Assuming comparable firms
I work for a PE fund and can undoubtedly say my hedge fund counterparts earn more.
In terms of work, hedge funds have looser mandates than PE shops and therefore typically chase whatever will bring them yield at a given point in the cycle (equity, pref, mezz, cmbs, reit positions, whatever). PE firms typically have geographical and property type restrictions in each of their funds, in addition to restrictions on where in the capital structure they can invest (strictly equity, or debt, etc.).
There are of course exceptions (i.e. I believe Rialto's opp fund can chase practically anything and they are a PE shop). I believe PE funds are most focused on the underlying asset and are more knowledgeable on what to look for on the asset level (once again, there are exceptions), while hedge funds will keep more macro-level (I am NOT implying they do not properly u/w assets).
You'll likely receive more variety at hedge funds, but will be receiving less asset-level experience. Both are great places to be and you'll earn good dollars in an investment role at either.
I work in the industry as well but still a bit unsure on the main differences...yes my shops recent fund has a very niche strategy vs wider focused mandate. But to say a PE fund cannot be structured as such, I believe is incorrect. Is it the partnership term and restrictions that separates a REPE fund from a RE HF? When we talk RE HF we are not talking about a HF that focuses on public RE equities are we? Other than our funds, we will target asset based strategies and raise capital on a deal by deal basis which allows us to be nimble while entering in and out of investments throughout the capital stack based on partnership terms.
In terms of actual legal structure from my understanding there are virtually no material differences.
So I guess I still want to know the real differentiating factors of a repe shop and a "real estate hedge fund", what am I missing here?
What are some examples of a RE HF? I know Torchlight Investors is one, but wtf do they do that is different than a repe shop that dabbles in wide variety of re asset classes?
I specifically mentioned that there were exceptions and gave an example of such a fund: "There are of course exceptions (i.e. I believe Rialto's opp fund can chase practically anything and they are a PE shop). "
You are not going to find one rule applies to all. However, for the few private equity firms that are able to invest pretty much anywhere they desire, the teams are certainly divided. The Blackstone guys working on acquiring US properties/portfolios/REITs are not the same guys acquiring thousands of loans from Spanish banks (someone can chime in, but I believe their special situation guys will handle that).
On the flip side, hedge funds have small RE teams and chances are their real estate guys work on all types of transactions. Paulson & Co. shorted CMBS during the crash, bought tens of thousands of land parcels during the early recovery, and recently acquired $1.5bn+ in offices and hotels in Puerto Rico. These guys are straight opportunists and will play cycles out to to the fullest.
Hedge Funds for sure. Super small teams and extremely nimble as they are not restricted by fund structures (for the most part).
Really REAcquisitionsnyc sums it up very nicely.
I have a coworker who previously worked in the RE group at a major HF. We now work together at a REPE shop. He said the main difference is the speed at which a HF can change strategies. At our current gig we are limited as to what we can invest in by the fund documentation. If we have an industrial fund we can't just switch gears and buy a busted condo deal because we think it is a good opportunity. We would have to receive approval from investors to stray outside of the original strategy they signed up for. There are certainly some REPE shops that have a lot of latitude with what they can pursue, but I would say that is the exception and not the norm.
When my coworker was at the HF his only mandate was a return threshold. He worked there through the most recent downturn and pursued everything from mezz, B Notes, land acquisitions, bridge loans, new developments, acquisitions, CTL's, and pretty much everything under the sun that was related to real estate. They tried to insert themselves into markets and locations where there was a lack of capital.
This is just one example and I'm sure there are more structured RE HF groups out there as well.
why did your coworker transition from the RE group at the major HF? Was there not higher pay/greater flexibility?
Bump
Okay interesting, thanks for the example. What are some RE HF groups out there? Specific firms.
REAcquisitionsnyc was not hating on your response, just really trying to understand this. It seems as if Paulson & Co's RE group is considered a HF because they in fact are predominantly a HF. However, when they bought land they were making private equity transactions. Shorting CMBS' I can understand being considered a HF activity - as these are liquid marketable securities. Acquiring PR hotels and offices (I like that move) again - private equity transaction in my book.
For all intents and purposes I consider these firms to be private real estate investment firms. If they offer a real estate mandate with x shares and close out the fund then I consider this to be a real estate private equity firm. A company like Paulson & Co may have an open ended fund focused on real estate investments (some liquid and public, others not) - and I guess the fact that it is not a closed end fund could (potentially) separate it from a traditional real estate private equity fund and adopt a HF label. With that being said, there are many 'private real estate investment firms' that chase multiple strategies and will form adhoc partnerships fitting of the opportunity at hand - I don't necessarily consider these hedge funds.
So, REAcquisitionsnyc and picklemonkey I'd like to hear your thoughts on the above ^^ and if you can - fire off the name of firms you would consider to be a RE HF.
To the guy saying Fortress is a HF - this is because they predominantly operate credit funds - some more liquid than others - however, these credit funds are not comprised of 'real assets' - as far as I know. They have groups that are private equity groups, mount kellet for example which invests LP capital in real assets.
As I continue to think through this on the spot - I'm starting to think the main differentiating factor could be open ended fund (although some hedge funds are closed out), variety of asset classes under 1 roof, predominantly (maybe) credit/liquid/non real asset holdings....fugg i give up.
They are all private investment firms that invest across the real estate spectrum. I have yet to hear a winning explanation. Hope to hear one soon.
@MIWP1989MI" maybe you have some insight here?
****Edit***
Oh and btw - just found this which proves the point even further...
http://www.bloomberg.com/news/articles/2013-04-24/paulson-to-open-secon…
Paulson & Co predominantly a hedge fund...but real estate venture is raised under PE Fund structure...
I have a friend in Fortress' real estate group, which calls itself a Credit Fund, although they seem to look in just about every direction. One day he's looking at buying CBD office and the next he's looking at CMBS tranches.
Fortress obviously pays very well. I think their associates make ~$250k. I consider them to be a hedge fund.
He left in large part due to the long hours and extensive travel. He has a wife and kids and after several years he wanted a better lifestyle. He was head of a satellite office and was on the road several days a week with long hours when he wasn't traveling. The firm made a killing while he was there and he did very well at the same time. The lifestyle of his current gig plus whatever he was able to set aside makes the comp decrease negligible.
It was a high intensity work environment. Most of the other acquisitions guys have left as well. Some left to other REPE shops, some to other HF's and several started their own firms.
Again, this is just one example. I'm sure others have very different experiences.
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