In recent years, elevated interest rates and an uncertain market have dampened demand for real estate investment funds. Consequently, finding Limited Partners (LPs) can be challenging—especially for a first-time General Partner (GP) or fund manager.
However, with the right strategies and tools, you can attract, engage, and manage LPs to keep your real estate fund running smoothly and help it grow.
How to find Limited Partners: Top 10 strategies
Consider the following 10 strategies to find Limited Partners:
1. Create a target investor profile
Before reaching out to potential LPs, define your ideal LP candidate. For example, what range of net worth, risk tolerance, investment goals, or geographical location do they have?
With a small fund, you may want to target high net worth individuals (HNWIs) or family offices as they are typically quicker at making decisions. For larger funds, you can expand your search to pension funds, university endowments, and other institutional investors.
2. Master online search
Many potential LPs don’t advertise their investment status. So it pays to search for them online.
Google search
On Google, you can search for LPs with specific keywords related to real estate investing, such as “real estate investor” or “private equity investor.”
To narrow your search, you can preface it with “site:” or “location:” and use Boolean terms such as “AND”, “OR,” and “NOT.”
Here’s an example: “Site:Crunchbase.com AND Location: “United States” AND “Real Estate Investor” OR “Limited Partner” NOT “Advisor.” This would return results for U.S. real estate investors or limited partners on Crunchbase who are not also advisors.
Linkedin search
As the no. 1 social platform for professionals, LinkedIn is another place to find potential LPs.
It lets you use the same Boolean search phrases and has advanced filters for narrowing your search results by location, current company, and how closely you are connected to the person (1st, 2nd, or 3rd+ connections).
You can also join LinkedIn Groups related to real estate investing to meet potential LPs.
Twitter search
Twitter has over 335 million users, making it a great place to scout out potential LPs.
On top of searching account profiles, you can post about real estate investing with relevant hashtags and keywords—such as “family offices” or “institutional investors”—to attract potential LPs. Just be careful not to post anything promissory that could violate Financial Industry Regulatory Agency (FINRA) regulations.
3. Leverage existing networks
Your personal and professional network may include potential LPs, so start your search there. You might be surprised by what you find.
However, even if someone isn’t interested, you can ask them for referrals and introductions. This can lead you to potential LPs you wouldn’t otherwise find.
4. Work with placement agents
A placement agent is an intermediary who finds LPs for you for a fee. Sometimes they also help market your real estate fund and negotiate partnership agreements.
The main benefit of working with placement agents is that it saves you time and effort. However, it also lets you leverage their network and expertise—a valuable asset for beginner GPs.
5. Check online databases
Platforms like Preqin and PitchBook offer large online databases of LPs. For example, PitchBook advertises a directory of 48,689 LPs globally that you can filter by assets under management, commitment preferences, investment focus, location, and more.
An LP database can be a valuable resource for your ongoing fundraising needs.
6. Use real estate brokers
Real estate brokers help people buy and sell property and may know potential LPs as a result—especially if they specialize in serving investors.
By building strong relationships with real estate brokers, you can gain access to their network of active investors who may be interested in partnering with you.
7. Join a real estate investing club
Real estate investing clubs are all over. For example, the National Real Estate Investors Association (REIA) has local chapters nationwide, and many others exist online.
Consider joining one to network with like-minded investors and potential LPs. Actively participating could pay great dividends in the long run.
8. Craft personalized messages
Whatever you do, don’t spam potential LPs with mass emails. Instead, study individual investor profiles and family offices before sending them a concise, personalized message.
Show you understand the potential LP’s investment goals and explain how your real estate fund can help. Go over its investment strategy, potential risks and rewards, and track record.
9. Use effective cold outreach
Once you’ve exhausted warm leads, try cold outreach. This involves reaching out to potential LPs with whom you’ve had no prior interaction.
To increase your odds of success, carefully qualify leads by verifying their potential fit for your fund, refining your pitch, and diligently following up with those who express interest.
Finally, don’t forget that cold outreach is a numbers game. The more leads you pitch, the more likely you are to find an interested LP. Every “no” brings you closer to the next “yes.”
10. Build relationships with potential investors
If an LP lead doesn’t immediately agree to partner with you, that doesn’t mean they never will.
Keep nurturing potential LP leads by updating them on your fund’s progress and new investment opportunities. Sooner or later, they may jump on board. The key is to maintain strong relationships even if they don’t seem rewarding in the short term.
How to engage Limited Partners?
Finding Limited Partners is only half the battle. From there, you must engage them throughout the investment lifecycle.
Among other things, this involves regularly communicating with LPs, providing detailed reporting, addressing potential risks and concerns, proactively sharing any mishaps or unexpected challenges, showing your commitment to the fund, and celebrating milestones.
When LPs trust you with their capital, it’s your job to preserve and grow it according to the investment strategy and provide progress updates.
Top characteristics to have to attract the right LPs
To attract the right LPs to your fund, develop the following attributes:
- Integrity. While it can be tempting to inflate expected returns and minimize potential risks to attract investors, don’t. It’s dishonest and could ruin your reputation.
- Transparency. LPs want to stay in the loop, and rightly so. They’ve got skin in the game. So communicate clearly, often, and early about the status of their investment.
- Trust. Famed investor Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it.” Build a reputation that investors can trust.
- Patience. Wait for the right deals. Jumping on one prematurely or taking on too many at once could lead to inefficiencies and poor performance.
- Accountability. When an investment fails to perform as expected or you make a mistake, own up to it. Hiding it or blaming others will likely only alienate LPs.
- Competency. Developing a strong investment track record and demonstrating your skill in building accurate financial models can go a long way in winning over LPs.
- Responsiveness. Though LPs have little control over investment decisions, they may still express concerns. The quicker and more thorough your response, the better.
- Foresight. The ability to see ahead to avoid preventable investment setbacks is the mark of a great GP. For example, raise more than needed to avoid a capital call.
- Precision. Keep detailed books on all transactions in your real estate fund to avoid intermingling funds and making costly accounting mistakes.
What is included in a Limited Partnership Agreement?
Here are the typical components of a Limited Partnership Agreement (LPA):
| Management fee | A regular fee paid to the GP for managing the fund, typically a percentage of the fund’s committed capital |
| Carried interest | Percentage of the fund’s investment profits that the GP receives as compensation |
| Hurdle rate | The minimum rate of return that the fund must achieve before the GP can start receiving carried interest |
| GP clawback | A provision requiring the GP to return excess carried interest to LPs if their overall returns fall short due to losses or adjustments |
| Investment period | The time frame during which the GP can make new investments on behalf of the fund |
| Term | The duration of the partnership (typically 5-10 years), including the investment period and any subsequent liquidation period |
| Key man | A clause specifying key individuals (usually fund managers) whose departure from the partnership may trigger a suspension of new investments or other consequences |
| GP commitment | The amount of capital that the GP commits to invest in the fund |
| Fee offset | A provision allowing the GP to offset certain expenses or fees against the management fee received |
| Investment limitations | Restrictions on the types of investments the GP can make, such as geographic focus, property types, or risk levels |
| Borrowing | The extent to which the fund can leverage its investments by borrowing capital |
That said, we recommend consulting a legal professional before drafting or signing an LPA.
How Agora can help manage Limited Partners
Want to take the stress out of managing your LPs?
The Agora platform gives you an intuitive CRM to keep track of LPs and foster positive relationships with them throughout the investment lifecycle.
It also streamlines fundraising by promoting your offerings with tailored marketing materials and data rooms—not to mention providing advanced analytics.
Furthermore, LPs can easily manage and track their investment on our integrated investor portal, promoting transparency with full access to documents and reports.
When it comes time for distributions, Agora lets you send money quickly with ACH transfers.
Overall, our platform is the perfect all-in-one solution to attract and retain LPs for your business.
Conclusion
Ultimately, finding, engaging, and managing LPs is an art. The more you practice it, the better you’ll get. However, you can shorten the learning curve and avoid some of the headaches that many fund managers experience by adopting proven strategies and tools.
Modified Date & Time : 12 Jul 2024, 04:18 am
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Author
Jamie Stadtmauer is the Vice President of Business Development at Agora and has over 20 years of experience in commercial real estate investing.
