IMN Proves That London Is Still the Place to Be
The IMN European Real Estate Opportunity & Private Fund Investing Forum was held Nov. 8-9 at the Hilton London Metropole, just a few feet from the Edgware Road tube station. What made the proximity to the tube station notable was the inquest being held those same two days to investigate a terror attack at the station, which occurred on July 7 (the 7/7 bombing) and killed 52 people. Going through the turnstiles and passing by the news people on hand (though no extra security that I could see) was a sober reminder that life isn't all fun and games.
The conference itself was held on the three basement floors (level -1, -2 and -3 on the elevator buttons) of the hotel. Seeing as how London was experiencing typical dreary London weather (after a week of glorious, atypical weather), being in windowless rooms underground was probably for the best.
Based on the directory of attendees, there were more than 450 people registered, which I understand was the best turnout in a long time. American accents were very noticeable, both on the panels and in the crowd. Judging by the accents on the stage, it could almost have been a conference in New York City.
My favorite panels were the LP Panel and the High-Net-Worth and Family Office Panel. One panelist on the family office panel recounted the story of a huge U.S. pension fund (as mentioned before, lots of American accents) that was leery of having a family office in the same fund because it was afraid if there was a downturn that the pension fund would have to make up for what the family office couldn' t contribute. As fate would have it, it's turned out that it's the pension fund that can't meet its commitment, and the family office is picking up the slack.
Mona ElNaggar of The Investment Fund for Foundations (TIFF) said that they prefer to wait to enter a fund until it has had a first closing. This assures them that there will actually be a fund to invest in, and gives them a look at who else is in the fund before they commit. She also said that TIFF encourages a manager to close a fund when it has enough, even if it isn't the target amount. "We don't want to see a two-year fundraise." She was particularly incensed that one of their GPs wants a two-year extension with full commitment fees, which TIFF has already been paying during years when nothing has been committed. She also said that they are in the middle of two situations -- one in the U.S. and one in Europe -- and the fees are adding up each month while the LPs fight among themselves instead of confronting the GP.
Jeffrey Giller of Clairvue Capital Partners pointed out that the promote structure was set up to allow the GPs to make money if they succeeded and to not make money if they failed. "Why are people resetting that now that they are not making money, which they aren't supposed to do if they fail to make their hurdle?" he asked.
Giller also said that fees are supposed to cover reasonable overhead and salaries, as well as incent GPs. However, fees set up based on a percentage for $300 million to $400 million funds get out of whack when applied to multibillion dollar funds. He does not believe that incentive fees should be renegotiated just because the managers are no longer getting a big promote, but he also doesn't think the LPs should be squeezing the management fees at a time when the GPs are working hard to keep their experienced staff. When it comes to selecting a new GP, he said most everyone is getting a pass on past performance because the recession smashed everyone, but how they handled their investors and responsibilities during a time of adversity will be crucial in getting new investors.
Chuck Purse of Park Hill said that he recommends that GPs get ready to help LPs exit a fund gracefully. It's much better to have investors in the fund who want to be there than to hold an investor hostage.
Finally, when someone asked why LPs are continuing to invest with managers who did them wrong, a voice from the crowd answered, "Institutional memory is short, and institutional justice is nonexistent."
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