Trying to understand what a fund manager actually does all day that a syndicator doesn't

I'm a few months into reading about this and the thing that finally made it click for me was the word "blind." In a syndication you're buying a building. In a fund you're buying a person's judgment about buildings that don't exist yet.

That's a completely different thing to underwrite and I still don't really know how you do it.

@vellum has the core of it. The underwriting shifts from an asset to a process.

The daily work does change, in specific ways. A syndicator underwrites one deal at a time and the answer is yes or no on that deal. A fund manager has to maintain a pipeline that's roughly three to five times the fund's remaining capacity at all times, because most of what he looks at dies. If I have $30M left to deploy and an 18 month runway, I need $100M plus of live looks moving through diligence continuously. That's a sourcing operation, not a person with a broker relationship.

Second thing that's new is pacing. A syndicator buys when a good deal shows up. A fund manager has an investment period with a clock on it and capital that has to go out before it ends. That constraint produces bad decisions in month 40 that the same person would never make in month 12. Watching how a manager handled the back end of a prior fund's investment period tells you more than any of his exit multiples.

Third is portfolio construction. Concentration limits, diversification across vintage and market, how much of the fund can go into one deal. Syndicators never think about this because there is no portfolio.

So yes, different job. The acquisition work looks identical from the outside and the layer above it is new.

Runs a small team so this part I recognize. The infrastructure difference is real and it's boring.

A syndicator can run on a spreadsheet, a bank account and a decent lawyer per deal. A fund needs a fund administrator, an annual audit, quarterly reporting to LPs on a schedule you can't miss, capital call and distribution mechanics, and someone whose actual job is investor relations. That's two to four people who touch no property ever.

My business is service side and the same jump exists there. Going from doing the work yourself to running a shop where half the payroll is people who don't do the work is a different company. Most people underestimate it by a factor of two.

The land angle on this is that funds mostly can't buy what I buy.

My holding periods run seven to twelve years and there's no income in the middle. A fund with a ten year term and an investment period in the first four can't hold a raw parcel through an entitlement cycle that might slip three years, because the clock belongs to the LPA, not to the asset. I've had two parcels where the right answer was to do nothing for four years and wait for the sewer line. No fund manager gets to do nothing for four years.

So the structure isn't neutral. It selects for a certain shape of deal, which is one more thing a fund manager thinks about that a syndicator doesn't.

@sextant nailed the month 40 problem. I've been on the sell side of that twice.

Both times the buyer was a fund near the end of its investment period and both times I got a price I wouldn't have gotten from a syndicator who could just walk. One of them waived a financing contingency on an asset with a 62 percent occupancy story I would have argued about for a month. He needed to deploy.

That's a real cost of the structure and nobody puts it in the deck.

Five years running my own shop and the fund version of my industry is the same trade with a completely different customer.

A syndicator's customer is the deal. A fund manager's customer is the LP base, and the LP base is a relationship you maintain across ten years and multiple funds whether or not any given asset performs. That's a job. You can be a great buyer and a bad fund manager because you never return calls in a bad quarter.

So what does the fund manager actually raise on if there's no building to show? Just the prior deals?

@beacon prior deals, realized ones specifically, plus whoever already trusts him. That's most of it.

Which is why the first fund is so hard and everyone in this room keeps saying track record. You're asking people to fund a search.

One thing to add to @sextant's list, based on the renovation work I do. Fund-owned assets get scoped differently. When the capex budget belongs to a fund with a defined hold, the scope gets cut to what survives to the exit date rather than what the building needs. I've been handed both kinds of scope and you can tell within ten minutes which one you're looking at.

@harrow that matches what I see on site. Fund jobs are tighter on scope and much slower on change orders because the approval goes up a chain instead of to the guy who owns it.

I voted different in kind above a certain size. A $15M fund is a syndicator with a nicer legal structure and I'd struggle to name what's different in his week. A $300M fund is a company. Somewhere between those the job changes and I don't know where the line is, though @cobalt's point about payroll that never touches a property is probably the marker.

Reading all of this as someone who just wants a distribution and no second job, and the part that lands for me is @thatch's. If the manager's actual customer is me, and the relationship runs a decade, then what I'm buying is whether he'll pick up the phone in a bad year. That's not something I can find in a deck.

I don't know how to check it either, other than calling people who were in his last fund. Which I gather is what you're all telling me to do.