How Institutional Investors Find the ‘Right’ Partner

Former DuPont Capital Management real estate head David Julier argues that it’s critical for LPs to underwrite the personality and mindset of the GP they invest with, and for that manager to act as an extension to the LP’s office

When a limited partner is evaluating a potential investment manager, the GP’s mindset matters most.

“That’s what will carry the day,” says David Julier, an independent consultant and former real estate director of DuPont Capital Management, particularly given the current reality of more than 500 closed-end funds in marketing mode. “You want somebody that acts as a partner in its truest sense, that have the mindset that ‘I, as a GP, am an extension of this institution’s office and that I have a fiduciary role to fulfill and uphold and that is the way I’m going to approach the assets under management business. It’s that type of mindset that you’re really looking for as an institutional LP investor.”

Julier—who ran DuPont’s $1.2B commercial real estate portfolio for nine years until December 2015, investing in more than 25 GPs—says LPs can underwrite a mindset by spending more time on the ground with their GPs.

“It’s understanding their thought process. It’s watching them operate—how they review an asset or walk the property or do community surveys,” he says. “It’s really watching them interact with others in the industry and then, taking your collective experience as an investor, and saying, ‘Is this person doing something that I think is better than somebody else, consistent with what I’ve seen before?’”

Julier is now advising smaller investment managers on their platforms and strategy, and says it’s also vital for managers to understand where they fit into the LP portfolio—not just in terms of real estate allocations, but for the plan’s entire portfolio.

“You have to understand where your fund, where your strategy fits into the broader context of not just a real estate portfolio, but in that portfolio of the foundation, endowment, pension,” says Julier.

As far as current real estate opportunities in the U.S., Julier is cautious. That’s because of the prospect of rising interest rates, and the question of whether current valuations are pushing acquisition teams beyond their mandates.

“The concern I would have as an LP is whether general partners, in an effort to achieve stated returns, start to creep into secondary and tertiary markets,” he says. “Are they starting to take on a higher level of risk than what they had stated in their presentation materials and offering memorandum?

“And that comes back to mindset and understanding my manager, seeing what’s happening in the portfolio, understanding the bricks and mortar. I want to be that close to it because I want my manager to act like an extension of my office.”