Manager Selection Process of LP’s Focuses on 5 areas

The Manager selection process by LP Institutional Investors usually focuses on 5 areas – Track Record, Team, Strategy, Structure, and Terms. Below is a combination of different variables that LP Investors focus on in more detail in order to select a Fund Manager for their portfolio. Portfolio Managers do not solely focus on Track Record.

INVESTMENT STRATEGY
– Investment Criteria
– Industry Focus
– Control of Positions
– Consistency of Investment Strategy
– Sources of Deal Flow
– Deal Exists
– Profile of Underlying Deals

MANAGEMENT TEAM
– Management Bio’s
– Industry Expertise of Partners
– Industry Rolodex
– Deal Sourcing
– Execution Capabilities
– Number of Board Seats
– Performance of Deals

BOTTOM UP ANALYSIS
– Risk Return Profile of Investments
– Financials of Portfolio Companies
– Capital Structure
– Assumption of Financing
– Industry Exposure
– Exit Horizons
– Track Record – Realized & Unrealized

TOP DOWN ANALYSIS
– Quality of Fund Manager
– Size of Commitments
– Size of Fund
– GP Incentives for LP 1st Close
– Reduce Performance Fees
– Reduce Management Fees
– Number of Underlying Deals
– Proper Risk Mitigation

As you can see the many factors in which Institutional Investors use to make a decision to Invest or not Invest is based on many things and is not primarily focused on just Track Record !
We have published this blog article to educate the General Partners on what we see to be important in the process of choosing a fund to invest in. Let REO Capital show you the shift in wealth from Pensions to RIA firms, Wealth Management firms, and Family Offices and what they look for in order to Invest in your Fund.

The following is some insight on Pensions – The investment policies of state and local government pension systems have shifted markedly towards alternative investment classes such as private equity, real estate and venture capital. For example, in January 2016, the California Public Employee Retirement System had invested almost 20% of its $276 billion portfolio in these asset classes, compared to 13% in 2001.

John Denes- CEO – REO Capital, LLC

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