In a recent episode of The Distribution by Juniper Square, Brandon Sedloff sat down with Nancy Lashine, Managing Partner and Founder of NYC-based Park Madison Partners. With over $28B in private capital placements since its inception, Park Madison Partners is a boutique real asset private equity placement firm, leading advisor to investment management firms, and FINRA regulated broker dealer.
During their conversation, the two covered a variety of topics, including the competitive landscape of capital raising, the dual-skill set challenge of investing versus fundraising, and the evolving role of real estate in investment portfolios. Read on for just a few insights from the interview.
It's a highly, highly competitive market … with more opportunities than there are investors.
According to Lashine, managers face a range of challenges in securing investments in today’s crowded and competitive market—one in which the supply of managers far exceeds investor demand. The sheer breadth and depth of the evolving market demands expertise and an ability to break through noise that can overwhelm an investment manager. The net effect is that it’s “become harder and harder to raise a first-time fund or to break into these relationships as the market has become more mature.”
“How do you get someone to pay attention to you unless you already have a relationship with them?” As Lashine noted, the key to being heard in a deafening market is relationships. “The first-time funds that have managed to go out and be successful fairly quickly were all folks that had strong relationships with investors. They'd already made money for them. And they were, for a variety of relationship reasons, eager to back these folks.”
For most managers, getting good at real estate investing doesn't necessarily mean being good at raising capital.
Another hurdle to raising capital is “not having the right person to go out and be a good marketer,” Lashine explained. Essentially, being an expert at real estate investing doesn't necessarily translate into being an expert at raising capital or knowing how to effectively organize a team around raising capital.
Lashine noted distinct skills required for effective capital raising: understanding where investors should be investing capital and communication. “I would distinguish between the fund business and the capital advisory business. On the fund side, it's really important to do two things well: you have to be a fiduciary and you have to be a good investor. You also have to know how to manage the whole process of the business. … Managing the business and communicating well is such a big piece of it.” This dual-skill set challenge of investing versus fundraising poses a big problem for many firms. And, as Lashine pointed out, they struggle with where to begin.
A well-articulated and proven fund management track record is also critical when building trust and raising capital. Lashine explained that “without a track record, you can't raise a blind pool fund.” She offered: “Now, if it's a joint venture or a continuation vehicle, then you're talking to more sophisticated investors, and they're underwriting specific assets. . . . There the pricing becomes more important for those assets.” Translation: A smart fundraiser will recognize that this is a relationships business–the relationship-building must remain foremost to maximize industry longevity.
The role of real estate is being re-imagined…. It's going to be much more of a diversifier … and much more of a stability factor.
A new concept for real estate emerged from the Great Financial Crisis: real estate as a primary growth driver with the ability to compete with private equity and venture capital as a total return vehicle. Lashine’s not bullish on that concept going forward. Instead, she sees real estate becoming “much more of a diversifier. . . . It's going to be more of a current return vehicle.”
And why not? Real estate can serve as an effective inflation hedge, diversifying investment portfolios and lowering risk. With “almost 20 years of wind at our back,” as Lashine remarked, rising interest rates and inflation are now significant market factors. Furthermore, markets now face additional unpredictability and uncertainty brought on by global political and climate change. As Lashine noted: “You may see some more risk-off strategies even from some investors who used to see real estate more as a total return. And that is just what real estate is. It's realistic.”