In January, Morgan Creek Capital Management hosted its second Real Estate Emerging Managers Summit in Austin, Texas. Among the most visible and vocal pension plans present was the event co-host, the Teacher Retirement System (TRS) of Texas. During a panel entitled “Inciting the Revolution,” pension representatives – including Stuart Bernstein, senior investment manager at TRS – shared their experiences with real estate emerging managers and voiced their opinions on how to solve the biggest challenges facing such managers today.
Bernstein and his peers—including Lauren Honza of the Employees Retirement System of Texas, Jason Love of the University of Virginia Investment Management Company and Roberta Waxman-Lenz of the United Nations Joint Staff Pension Fund—discussed the need for a change in the way new and first-time funds are raised. The panel noted that the lack of a standard business practice makes fundraising especially difficult for emerging managers and that the typical 24-month process of courting investors and garnering commitments is too lengthy, often becoming the downfall of new fund sponsors. Bernstein suggested that one way to circumvent this issue could be for LPs with similar interests to invest together as a group. He did not indicate if TRS would be open to such an investment strategy in the near future.
Bernstein also commented on the promises made by many emerging manager programs, warning the audience full of delegates from early-stage firms of the issues that can arise when a program assures a certain ‘graduation date’ to move from emerging manager to a full-fledged manager. He advised caution against programs that promise specific graduation deadlines or goals, as those arbitrary figures do not guarantee success in the long term.
Overall, the panel of pension experts agreed that, in order to help emerging managers become more successful, LPs and GPs need to improve the way they communicate. The panelists noted that there is a disconnect between new managers and the institutional investors that can ensure their success, and they expressed hope that this gap may be closed through more communicative relationships in the future.