What are differences and various benefits/consistencies of forming a Syndication vs Fund?

@Logan Guest

many people used those words interchangeably.

@Logan Guest

There are two types of syndications that are popular, fund type and project type.

@Logan Guest , as mentioned a Fund is a syndication.  

That being said, most people think of a syndication being a deal brought to investors. So the investors know which deal exactly they would be investing in and can make their decision accordingly.

A fund is typically thought of raising capital to be placed in the future.  So investors are placing commitments with a sponsor, THEN the sponsor starts looking for deals.  Typically, the sponsor will raise enough to invest the capital in several deals, so the investor has a small piece of multiple deals, but no say in which deals they are.

There are pros and cons of each.  Typically, for private investors, I think the project specific, syndication, approach is better.  It lets you pick and choose both sponsors and projects, as well as pick their timing based on capital available.  And, you know when you are putting your money to work, versus having to wait out an investment period.

For the institutional investors, funds seem to be better, because they can allocate large amounts of capital at once. Funds, by nature, have capital calls over the investment window, which can be several years.

In terms of fees, costs, returns, there seems to be very little difference in general.  Each sponsor will set their terms, but I have not seen anything dramatically different between the two.

There are many variations of a "fund" but typically they will allow for greater diversification and emphasize more trusting in the track record and team of the sponsor themself rather than trying to underwrite every nail of a specific property. 

From an investor's point of view a fund affords capital to all be placed at once in most cases save some sort of a pledge model and thus generally accrues a pref as soon as the capital is placed.  This would also translate to less time with the money placed yielding close to 0% financial return, or whatever can be captured in the overnight treasury market.  This obviously means that you'd need to define the investor persona and more sophisticated firms will have access to yield while seeking placement a lot easier than smaller investors do.  

Funds also allow for diversification across investments subject to the operating agreement constraints assuming that the sponsor actually follows them.  Internal control provisions are arguably more important for this reason.  

Depending on how things are structured funds could also offer some tax advantages as well, but I don't generally think this is a large consideration for most sophisticated investors.  The after-tax yield net of risk is much more important than minimizing taxes.  

"Syndication" generally refers to placing capital for a given type of investment where the investor can render a verdict about the viability of that project before placing the capital instead of turning it over to a sponsor prior to a project being identified.  Whether or not this is better depends on many things, but assuming you can underwrite sponsors well you'd have more control in this situation.  Much of the financial return from either of these investment types is by definition systemic and thus really isn't predictable when you place the capital.  Underwriting sponsors well is also very complicated and is best done in the same way that any investment's risk is mitigated; through diversification.  

Funds vs Individual Syndications from an LP perspective:

Funds offer: more diversity, typically longer hold time, In some cases multiple state K1's which can add to CPA costs, less ability to vet individual deals, in some cases money can be tied up without being deployed or may be deployed into subpar investments because of pressure from LP's to deploy/get a return on money.  Cost Seg/Bonus Depreciation less predictable and more complicated.

Individual Syndication Deals: Allows single deal evaluation, typically shorter hold time, may be easier to turnover money and deploy capitol into new deals, single K1 typically thus more simple taxes, may need more upfront due diligence since need to vet both deal and sponsor.  Cost Seg/Bonus Depreciation more simple/predictable.

Personally, as an LP interested in long term upside I prefer single deals.  I also prefer them because as someone who uses mostly post tax dollars (not SDIRA) I enjoy the tax benefits of Cost Seg and Bonus Dep.  It kinda frustrates me when good sponsors switch to fund models.  An interesting Hybrid approach would be if sponsors did "State Specific Funds" to avoid the multiple K1 issues.  Such as a Fla Fund, and Arizona Fund, a Georgia Fund, or South Carolina Fund etc.  Obviously the GP would need to have expertise and a team in these regions, not just to willy nilly throw several state funds out there.  As an LP this would make it more enticing for funds as I hate multiple K1's from a fund if properties in several states.  But also would want a deal with heavy Cost Seg/Bonus depreciation component.