One of the coolest parts of working at Redwood (yes, I have a cool job that revolves around accounting) is working with clients who possess a variety of interesting backgrounds and success stories. I recently spoke with four successful Fund Managers to get an understanding of what got them to where they are and what has enabled them to continue to be successful. Over the next few weeks I will share what I learned, including insights into raising capital, investor relations and today’s installment: what they wish they knew when they started.
For this series I’d like to thank the following Fund Managers, who generously shared their time and insights with me:
Drew Buccino, CMB
Principal and COO
Matthew W. Burk
Fairway America, LLC
A focus on continuous learning
One common trait shared among the Fund Managers I spoke with is that they are constantly learning, so when I asked what they wished they knew when they started out, they had a lot to offer. The universal answer to this question was that none of them realized how hard it would be, with the sheer breadth and magnitude of so many moving parts and issues, from capital raising to investor relations to accounting/administration to tax questions. One Fund Manager compared it to having kids – no matter what anyone tells you and how many books you read you have no idea what you are in for until you have a child, or in this case, a Fund of your own. Having a continuous learning mindset helped these Fund Managers work through these challenges.
Getting the right advice
Forming a Fund can be an ordeal in and of itself – often you don’t know what you don’t know! One Fund Manager expressed that he was grateful that he had an awareness about what he didn’t know. It prompted him to pay for the right guidance in forming the Fund and have the right advisory partners in place from the beginning. Getting the right guidance in forming your Fund can help avoid costly mistakes down the line.
Raising capital is hard
Raising Capital is the number one struggle for Managers in the early phases of their Funds, especially in a fund format. Prior to the formation of these Funds, many existing investors had grown accustomed to the syndication model that allowed them to review each deal, ask questions, and potentially earn a higher yield than in a Fund (although not nearly as diversified as a Fund). One Fund Manager forced the issue by putting as many deals as possible into the Fund and not giving investors the option to invest any other way. Investors who moved to this particular Fund ultimately appreciated the diversity that they didn’t get in the lone deal format, albeit a potentially lower yield than in any given syndicated deal.
Running a Fund business
The Managers also commented on the difference between being in the Fund business versus being in the Real Estate business. In some cases, the challenge of managing idle cash which negatively impacted fund-level returns caused Managers to waive all or a portion of their fees to ensure that investors received their target yields. Similarly, the balance of not calling capital too early while still being able to fund fast-moving acquisitions was another learning experience previously not encountered by new Fund Managers.
Although these Fund Managers employ differing business models and live and invest in different parts of the country, they all share a passion for personal and professional growth that has driven them to be successful individuals that I feel personally lucky to know. Working with and for these entrepreneurs to deliver institutional quality financial reporting, it is a treat to step back and learn about the people and strategies that are allow Redwood to provide this service.
Click here for the second installment of Fund Manager Chronicles, focusing on effective strategies for raising capital.
Erica England, C.P.A
Redwood’s Chief Accounting Officer Erica England C.P.A. has 10+ years of experience working in the private equity industry and is always happy to discuss how Redwood could help you with your fund administration needs. Reach out to Erica at email@example.com to learn more.