Archives
October 2020
Categories |
Back to Blog
A student recently asked the following question:
Before diving into my response, a few notes to make sure we’re on the same page. First, what is a “small family office REPE firm?” Basically, a family office is a private company that handles investment and wealth management for a wealthy family. Once a family hits a certain wealth threshold, typically around $100M, they establish an entire business to manage their dynastic nest egg. This particular family office invests in real estate (probably among other asset classes), and would like to add another position onto a team of five. With that background established, here is a list of key questions I would focus on, and reasons why each question is important to ask: Assets Under Management Question: What is the AUM (assets under management) of the family office? How many properties does the fund own? Reason: As an employee, greater size ensures greater stability and opportunity. On the stability side, a larger fund will not go under quite as easily over the next downturn. On the opportunity side, a larger fund will manage more asset classes under more strategies and encounter more specialized situations than a smaller fund. I do caveat this statement to say that small funds afford greater responsibility to individuals. So what you might lack in horizontal opportunity (diverse things to do), you may gain in vertical responsibility (managing complex people and processes at a much more junior level) when employed at a small family office. What is the Fund’s Allocation to Real Estate? Question: How and how often does the fund decide its capital allocation to real estate? What is the current allocation, and how has that changed over time? Reason: This family office fund likely invests in many diversified sectors other than strictly real estate (sovereign bonds, high yield debt, venture capital, etc.). But what percentage of its total AUM does it direct toward real estate? The more real estate this fund manages, the better for your career prospects there. So it’s good to know how this fund determines that percentage. Is it fixed forever in a founding document? Do they reassess every year? If they recently increased their allocation to real estate, why? Is it likely that they might downsize their allocation in the future (this one you may need to deduce yourself)? These questions are all important when planning your career in REPE. Does the Fund Perform Direct or Secondary Investments? Question: Does the office perform direct investments, or does it sidecar as a secondary to other investors? Reason: Direct investing is just as it sounds -- you buy assets outright, entirely or at least with a controlling >50% stake. Most importantly, you control the operations and you decide when to force a sale. Sidecar, or secondary, investments are less hands-on. Secondary teams are generally further from the source data, since they typically rely on the primary investor to feed them all the information. You might prefer a career in REPE on the secondary side if you value time with your wife and kid, since the hours in such roles are generally less demanding (though exceptions certainly apply). Just understand that it’s easier to move from direct to secondary investing than the other way around, if you ever wish to work in direct investments down the line. What Is the Fund’s Target Investment Strategy? Question: What is the fund’s target investment strategy? Core, core-plus, value-add, or opportunistic? Reason: Investment strategies range from core, core-plus, value-add, and opportunistic (more on this in the Leveraged Breakdowns course, Breaking Down REPE). Basically, each fund strategy invests in progressively riskier asset classes. A core fund will focus primarily on shiny trophy towers, whereas an opportunistic fund will pursue hairy assets in out-of favor sectors with operational upside. This is just a good fact to know to better understand the nature of the firm’s investment strategy and how to prepare for follow-up interviews. Most funds will perform a mix of strategies. Career Progression Question: What is the path for career progression five or ten years down the line at this firm? Reason: A family office has a lower ceiling for career progression vs. working at a major REPE fund like Blackstone, Carlyle, etc. because the power ends with the family. That said, you’ll gain similar skills to an REPE fund and could probably lateral if you hit a roadblock down the line in your career. So I wouldn’t fret too much about this if you are look. Investment Time Horizon Question: What time horizon does the fund assume for its investments? Five-year, ten-year, perhaps buy-and-hold (forever)? Reason: Most likely, the family office is a buy-and-hold investor that only disposes of its assets opportunistically. That just means they buy buildings and hold onto them forever, unless somebody offers a price that’s hard to refuse. This differs from a traditional REPE fund, which raises five- to ten-year buckets of capital which force it to ultimately sell each building it buys on a strict five- to ten-year timeline. But on the off chance this family office plans to wind down over the next few years, that would be good to know from the onset. Funding Sources Question: How many funding sources does the fund have? Is it just the single family? What is the family’s initial source of wealth, and does the fund intend to receive more funding? Reason: Likely, this family office manages the wealth of just one family (since you said it was small). However, there is a small chance it could actually manage the wealth of multiple families, and sometimes even institutions. This is rare, and oftentimes such pedigreed family offices blur the line and are effectively REPE funds / megafunds. See this article for a deeper dive into the sources of REPE funding. Is the Focus of the Role Investments or Portfolio Management? Question: Is this role more investments-focused, or more portfolio-management focused? Reason: The job description you posted sounds like this is either a middle-office, or front-office portfolio management role. However, you should directly ask this question to get a sense of the responsibilities. If you aren’t aware of the differences between portfolio management and acquisitions, check out the free guide we email you when you sign up for the newsletter on our front page. Bottom line, the REPE interview questions could vary drastically whether this is an investments or portfolio management position.
0 Comments
read more
|