What's the best structure for capital raising during a recession?

Question

Hello all,As we approach what is very likely a recession or at the very least the economy slowing down what structure (syndication, SPV, fund, fund of funds) do you think would work best for capital raising?Investors are more reluctant to make single large investments, tend to seek diversification and seek out trusted advisors and a portfolio that has more points of liquidity during times of recession. I feel investors will migrate more away from syndications towards funds as funds provide a better solution.

Fund of funds especially customizable funds like those provided by Avestor offer investors the ability to pick and choose which investment they want and how much they want to invest in each deal and have multiple points of liquidity. Customizable Fund managers also can play the role of a trusted advisor and build a well balanced portfolio for investors that is custom built for each investor instead of trying to sell them one deal at a time.

Investors are more sensitive to overhead costs during times of recession. Customizable funds are also a lot cheaper and have less overhead compared to doing one syndication deal at a time and combine the best features of syndications and funds.

Thoughts?

Greg Scott · Answer

I have to believe that track record and reputation far outweigh considerations about legal structure.

Personally, I'm not a fan of funds. I've seen a lot of terrible decisions made by people that have raised money in a fund. When they have millions of dollars raised, they have to put it to work quickly. As a result, they tend to pay more for a property. Alternatively, they buy the properties others won't. Assuming a traditional syndication really does has higher overhead than a fund, buying into a fund for that reason is like stepping over dollars to get to the dimes. A better investment will beat out lower overhead every time.

Chris Seveney · Answer

I believe it will be based on the sponsor. There are many types of syndications that also do not invest in a single asset. I agree I think investors may shy away from single asset syndications or assets that have higher barrier to entry. Having a lower barrier to entry and having a portfolio of assets I believe is a better scenario during any type of economic condition.

Ronald Rohde · Answer

I don't think this recession will be long enough for any of these structural changes to have any meaningful impact. Use the structure that works for you, not what your investors marginally prefer.

If its a good deal, solid operator they trust, they'll invest. Period.

Badri Malynur · Answer

@Greg Scott you are completely correct that traditional blind pool funds have this problem where sponsors are forced to deploy funds quickly, customizable funds like those provided by Avestor combine the best features of syndications with blind pool funds allowing sponsors to raise money one deal at a time but in the context of a fund. Investors can choose which deals they want to invest and still get a single K-1.

What's the best structure for capital raising during a recession?

What's the best structure for capital raising during a recession?

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