What Makes a Successful Fund Management Team?
No race is won by being in front at just the beginning or even for the entire race but stumbling two feet from the finish line. The same holds true for staying on top as a fund management team. Past successes are great, but if you are going to keep your clients happy, you have to have consistent performance. Any fund manager knows that a string of failures, even if they don’t eat up the gain previously made, will have your clients looking elsewhere.
That is why a truly successful fund management team has a solid strategy in place and sticks to it. It is much like the story of the tortoise and the hare. Speedy but failing is never better than slow and steady. When you are an investor looking for a successful fund management team, you will need to look at them from many different angles, so you don’t base your decision on something that is fast, but fleeting, and won’t get you to where you want to be in the end.
There is an odd thing about past performance that needs addressing. While a history of low or mediocre performance is likely to continue, there is no guarantee that one that has had stellar performance will continue to do so. Sometimes a fund management team can quite simply get lucky and even stay lucky for quite a while.
Just as a boat will go down a straight river in the right direction for a long time without an oar or rudder, when it meets some turbulence it is probably going to falter. If the fund management team has no rudder, no plan, no strategy, but still had great performance, it could be they were just on a nice straight river. Eventually that will not be the case. To put it simply, you want to make sure they have a plan for the rapids, and twists and turns, ahead.
This is not to say that you won’t get superb future results from one that has had great performance, but you cannot base your decision on this factor alone. Experience counts but you must look at more than just that.
Consider the Structure
In gauging the risk of investing with a particular fund, consider the structure of the team. Is it run by one main person who is in charge of most of the decisions, or are big decisions made by a team of managers? It can be a tragic result when leadership is narrow and a loss is suffered, either by moving on or retiring. Will those that take up the reigns continue with the same strategies, or will they make drastic changes which might not have the same results? A broader leadership has less risk of this happening. As long as they are working well together, the status quo should continue even if someone were to leave.
Consider the Size
A successful fund management team is also dependent upon the size of the fund because that in turn dictates the freedom in which they can operate. While smaller funds leave plenty of room for creativity, while larger ones are more structured, with that comes more risk. On the other hand, a larger one may lack the ability to jump on something really great. The size also dictates other factors such as your ability to liquidate your holdings easily, the size of properties that can be invested in and how much room there is to adjust to changing conditions. Either size can be successful, but you need to evaluate the degree of risk that exists to determine whether it fits with your risk tolerance and earnings goals.
Some of the process of selecting a successful fund management team is based on solid financial advice and attention to risk factors. Others, albeit to a lesser extent, depend on how it feels to you. If you get a good vibe because the fund management team is approachable, knowledgeable and frank with you, and your investigation shows a solid strategy in place and some great players on the team, you will probably enjoy great success investing in that real estate fund.
As with any investment, the more you know the better your chances for the results you desire. You’ll save plenty of time turning due diligence on properties over to a team, but that doesn’t negate the fact that you should exercise due diligence in choosing the fund and the fund management team that will make your investment grow for you.
Share this Post