Anyone invested in Fundrise?

Question

I've been listening to a lot of BP Podcasts and heard ads of this crowdfunding website. I recently invested a couple of thousand with them. The return looks good, however, I heard someone said the redemption process is long and difficult to get their money back. Not sure if that is the case. Can anyone share experience investing in Fundrise.

Renee Ren · Answer

Thank you Ian. I feel like they are not very liquid so only throw a couple of thousand on the platform. So far the return looks good but I guess it is for long term investment not for short term.

Lily S. · Answer

Agree with @Ian Ippolito 100% based on my experience in fund formation and product development in private alternatives. @Renee Ren before you make any investment via Fundrise or any other crowdfunding marketplace, please carefully review the liquidity mechanisms as described in the offering documents and consult an experienced securities attorney if there is any ambiguity. Closed-end private equity style offerings generally have very different liquidity profile than a private credit fund (or interval funds), where the investor lock-up period is generally longer, with most of the returns being generated at exit (or back-ended). Given the size of the transactions generally offered on crowdfunding sites, there aren’t enough secondary trades large enough to make the economics work systematically (besides the regulatory constraints) for Broker/Dealers to be incentivized to help LPs to redeem their positions via a sale/transfer to a new investor before the end of the investment period.

Private interval funds generally target 15-20% of their allocation to short term investments or reits so they can satisfy investor redemptions after a shorter lockup (usually 2-3yrs), of course this may create a cash drag on returns if not managed appropriately. But again, read the offering documents carefully as you study the investment opportunities, don’t rely on the marketplace or any random (perhaps uneducated customers google reviews) to do your diligence for you.

Ian Ippolito · Answer

Most of the crowdfunding platform operate like Craigslist ads and simply connect investors to third party sponsors. These platforms do not get involved in the transaction beyond the connection, and so any liquidity options and investor may have are simply what that sponsor has or has not offered in that individual fund/deal.

There have been one or two platforms that claimed that their goal was to eventually create a marketplace for investors to swap out any deal with another investor. But all of these investments operate under highly regulated and constrained exemptions to securities law, and I have been told it is very difficult to do the above legally. This may be why I've only seen this in pitch decks, and not actually seen it happen in real life.

In the US, the SEC has both allowed and authorized the type of liquidity I've described in my last post for decades in what's called the "closed interval fund" industry. I don't know exactly how the funds in the UK work that you described. But any company that properly creates and maintains a liquidity sleeve like I described above, is going to be able to honor its commitments. On the other hand if the fund has not set aside adequate liquid reserves to meet obligations, then I think it is probably only a matter of time before they are going to have a problem meeting them.

Renee Ren · Answer

Thanks Bob. I invested 2k so far. My portofolio has 35 investments so far. They did diversify the investment. But hard for investors to control what they invest and how long can we get the money back so I won't invest more money with them.

Bob Daniels · Answer

*Disclaimer*  My account has only been open for 3 months, which isn't nearly long enough to draw a solid conclusion from.

I recently invested 1k with them in their long term growth fund as a test run to see how accurate their claims were.  This fund supposedly had the highest rate of return overall coming primarily from appreciation.

I opened my account on Aug 15th, and during the last ~3 months, my portfolio has gone up by a combined 1% (appreciation and dividend).  While this number is overall very low as it pencils out to only about a 4% return per year, I found it interesting that my dividends were twice what the appreciation was considering this was supposedly a growth fund and not a dividend fund like their heartland REIT.  I'm not sure how often they do an assessment on the valuation of their properties, if it's quarterly or annually.

The dividends seem very high at .7% for the quarter, which extrapolates to 2.8% for the year.  Their website claims dividends for this fund should be roughly 1.3 - 1.4% for the year so this is on pace to double that.  We will see what the overall return looks like in 9 months when they have had a full year to go through a full evaluation of their assets valuation at least once.

Marco Bario · Answer

Fundrise recently sent an email to investors notifying that in difficult market conditions they reserve the right to halt redemptions. I invested $1,000 with Fundrise this year out of curiosity. The option I close resulted in my capital split four ways and invested in four different funds (2x growth, 2x income). Interesting.

John Corey · Answer

I am familiar with funds doing this. Do you know of any crowdfunding platforms which operate a similar model.

The UK ended up with a number of funds freezing redemptions when they had a big run. I think it was the BRexit vote that triggered the rush for the door. The stampede was so large, the regulator, the FCA, is looking at stopping funds from offering redemptions. The underlying assets are not liquid so it is a bit of a false market to suggest redemptions are generally possible. No decision so far.Personally, I think the real logic of the FCAs review is to force investors into REITs if the investors really want liquidity. If they are prepared to earn the private fund returns (and tax benefits) they need to accept the lock up period is indeterminate. Using the right tool for the right investment.

Ian Ippolito · Answer

It's actually a pretty common feature of many of these types of funds. What they do is hold a certain amount of their portfolio in liquid assets (for example public REITs). A typical amount might be 20%. Then if they need to redeem, they use that money to do so to avoid selling assets. They will also have some sort of limitation in the contract as to how much they guarantee to redeem fund wide and perhaps at the investor level as well. In a well-run fund, this allows them to service all liquidation requests under normal circumstances. Of course, if there is a severe recession and a "run on the bank" situation, then the redemption feature is gated. So it's not a guarantee, but still much more flexible than actually owning the property directly yourself.

Anyone invested in Fundrise?

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