For new, small management firms, fundraising has been a challenge over the past two years in a high-inflationary environment. But for those with a structure in place to mitigate risks, it hasn't been too bad.
When Standard Real Estate Investments was founded three years ago, the minority-owned real estate manager thought it was going to launch a fund as that was what its employees "had been accustomed to working on," said Robert Jue, CEO and co-founder of the firm.
"That was available in some instances with different clients, and then other clients weren't interested in working in that way," Jue added during a panel at the Texas TRS/ERS Emerging Manager Conference on Feb. 28. But where the firm found the most capital "was with emerging manager programs who wanted to work with us through a joint venture structure."
Today, Jue said the $300 million firm — which is based in Los Angeles and Washington — is "indirectly investing on behalf of five of the 10 largest pension funds in the United States," including the $259.9 billion New York State Teachers Retirement System.
About half of Standard Real Estate's business was done thorough a programmatic joint venture with a consortium of different institutional capital, including one with GCM Grosvenor.
Going through this kind of structure presents both challenges and benefits, Jue noted. Regarding the challenges, he said the firm doesn't have "much discretion over the investment-by-investment decision-making" that it would have if it was a fully discretionary fund.
Standard Real Estate also does not have as much capital certainty in the market because it has to co-underwrite with its clients. The manager is used to that as it is accustomed to the separate account structure and "knew how to be productive in that sort of framework" and "ran with it," Jue said.
Having this structure also provided the firm "with "the opportunity to be flexible," he added. In the volatile market environment it faced, Standard Real Estate's original strategy was to invest in apartment development, which ran its course. Jue said the firm has since pivoted to industrial development, which continues, but it is also starting to buy some workforce housing assets, such as apartments available to low- and middle-income households.
"I think because we haven't been locked into a particular fund strategy through a fund structure, we've been able to do that efficiently," he added.
When asked by moderator Kirk Sims, senior director of the emerging manager program at the $187.1 billion Texas Teacher Retirement System, Austin, about moving into a fund structure in the future, Jue said it's "definitely something that's on the growing path," but especially for real estate, it's "finding a lot of institutional investors have large asset teams now themselves, in-house, and they like co-investments."
"They like having investment-by-investment discretion, so I think for us, when we think about what we really want to ultimately be when we graduate, it's going to be some combination of a fund structure and then also some level of separate account allocation as well," he added.
