ASIA NEWS: Too much skin?

Did you hear the one about the private equity real estate fund manager that charges zero percent performance fees?

Far from a joke, Sydney-based LIDIS plans to charge no performance fee and just a 0.8 percent management fee on its upcoming LIDIS Real Estate Fund VI fund, an opportunistic vehicle targeting a mix of commercial and residential assets in and around Sydney and Brisbane.

The firm, a family business led by executive chairman Dennis Lidis, says it’s serious about profiting through the six-year vehicle by matching the equity it attracts on a dollar-for-dollar basis with its own resources.

Chief executive officer Stefano Solferini said: “Our rock-bottom management fees are there to cover our overheads, and nothing more. We have a structure that has stood in place for the last 19 years and ensures maximum alignment. We make money out of the assets, not the fees.”

LIDIS started fundraising last month and is hoping to attract $200 million from investors, which it intends to match using resources such as company equity, balance sheet borrowing and asset borrowing at an average level of 35 percent loan to value.

This way, LIDIS is liable to share in capital losses with investors should the assets fail to perform. Furthermore, the firm has structured its capital commitment as subordinated to that of its investors, ensuring their equity operates as preferred equity.

The approach has enticed investors to back its previous five vehicles, for which LIDIS has generated a pooled IRR of 35 percent. The difference with Fund VI, however, is that institutional investors will be approached for the first time, whereas prior funds were aimed at family offices and high-net-worth individuals. LIDIS has raised some $275 million from investors since its formation.

Lidis said the fund launch would signal a return to the capital raising market, following a hiatus since 2003. As so much of its capital was at stake, the firm, like its investors, opted to stay on the sidelines when the global economic crisis struck. He said: “Because of the discipline the system imposes on us, we held no live funds for the last three years. Now, we see the opportunity is compelling to return.”

The fund is expected to make five to 10 investments of between $5 million and $50 million. Its first closing is expected mid-December.