It’s More than Just Real Estate

When thinking about making the jump to institutional investment management, it’s natural to ask this question first: “Can I raise the money (and make loads of it)?” But here’s a better alternative: Do I have what it takes to be a good steward of someone else’s money? Now that may sound like a moot— or indeed, unessential— point, but it’s critical. Raising a private equity real estate fund is not about corralling another source of capital for deals. When an operator-partner, developer, or even a spin-out group from an existing private equity real estate platform closes LP capital, they have to remember one simple but loaded word: “Fiduciary.” When you invest on behalf of institutional investors, be it for CalPERS or a small family office, you become responsible for generating returns ‘Real estate is your product, but your business is being a manager of institutional investor equity. And that doesn’t mean merely tacking on reporting and compliance functions. It means a change in mindset. It means over-communicating, not necessarily in volume, but in quality. It means that your investors come first, and you second. Fundamentally, it means alignment of interest (however hackneyed that phrase has become) with your limited partners. For LPs targeting emerging managers, the great advantage of being early investors is the ability to help shape that alignment, and to help guide the development and evolution of a firm’s mindset and culture. By taking the time to do that today, you’re equipping the next generation of managers with the skills to go out and raise capital more widely tomorrow. It’s sexier, of course, to focus on the bigger money that institutional fund management can corral. But to survive as an institutional money manager, you must appreciate that with institutional money comes institutional responsibilities. You’ll see more evidence of this in this special report.