Savvy Investors run a process to select the best Private Funds. They focus on the character and resources of the Manager, and not on Past Performance.




Our minds trend to make emotional decisions based on feelings, without all the necessary information, and the only way to defeat this is by having a process to thoroughly vet the Managers and their Teams.




Make sure you select a Fund Manager (not a Fund) who have the character, and capabilities to overcome situations during a market shift. Managers must have a strong strategy for those days, seasoned asset management team, risk-management policies and procedures, a full understanding of the market their serve as well as clear competitive advantages.




Here are three things to look for:




1.- Experience:




Is the Manager and its team related with the Property Type they lending on? Asset Class? Location of it? Is the Manger experienced in Residential, Commercial or Both? Single-Family or Multifamily? If Commercial, what type? Does the Manger have experience in Construction Loans, Rehab or Land Development?




If the manager has little experience on those topics, you should pass on the opportunity.




2.- Team




Is the Fund running under a one-man shop model or a team? – Can they provide information on their team?






	
Inside team: Business Development, Loan Originators, Loan Processors, Underwriters, Marketing, Advertising, Comptroller, Investor Relations, Capital Markets, Accounting, Legal, Loan Servicing, Asset Manager


	
Outside: Attorneys, Real Estate Brokers, CPA. Fund Administration, Banking, Credit Facilities, Insurance Companies, Appraisers, Brokers, General Contractors, Third-party Professional Consultants






3.- Alignment




Most Fund Managers claim to have personal money invested in the Fund, but how many of those Mangers have their own money servicing as First-Loss?




Mangers need to be aligned with their Investors, and co-investment is the easiest way to achieve this alignment, however only very few successful managers go far beyond this practice by having their own money in first position in case of a loss. This will give the Investors an extra layer of protection in case of a market turn. This will truly show their commitment with both; the Fund and its Investors




4.- Deal Size




What’s the range-size of the loan amounts? – Is the Manager experienced in small or large loan amounts? – Both have different capabilities, and both size-loans require its own experience.




5.- Geography




Is the Fund lending Regional, Statewide or Nationwide? – Does the Fund have the capabilities to underwrite and oversee loans outside their location? if yes, how do they manage those, and what’s their experience on it?




Have a question?




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