UK Roundtable: LPs ask for ‘reverse placement’ solution

Investors have been asking selected fund managers to launch real estate funds, according to Ernst & Young’s Dean Hodcroft. He explained his experience at this month’s PERE UK Roundtable discussion.

Real estate investors have been selecting private equity real estate fund managers to launch vehicles in a move dubbed “reverse placement”.

According to Dean Hodcroft, the head of real estate, hospitality & construction for Europe, the Middle East, India and Africa at Ernst & Young, some investors, wanting to make third party commitments to real estate funds but through particular fund managers, have approached favoured managers to create a vehicle for them to invest in.

Hodcroft recounted his experience at the PERE UK Roundtable debate earlier this month about this latest practice. He explained some investors already knew which fund managers they wanted to commit their capital to, and had taken it upon themselves to approach the manager directly. In most cases, he said, these are manages with which the investor has had a prior and favourable working relationship.

This is a departure from typical fundraising exercises, whereby the fund manager would construct a private placement memorandum (PPM) ahead of embarking on a road-show in an attempt to corral an often pre-determined amount of equity commitments.

Hodcroft, declined to mention specific examples, but said generally: “We are starting to see, what I call “reverse placement”, whereby investors are going to the fund managers they have worked well with and are saying to them ‘why go through the hassle of forming a PPM – will you set up a fund in which we will invest instead?’”

“I’m not sure whether this will turn into a trend or not,” he said, “but we are starting to see the better-run outfits being singled out for that sort of treatment at the private equity or opportunistic side of the real estate fund management market.”

The PERE UK roundtable debate took place in the top floor restaurant of the Hilton hotel, Park Lane, London on Thursday 6 May. Alongside Hodcroft was Alex Jeffrey, chief executive for Europe at global private equity real estate firm MGPA and Paul White, managing director of UK-focused Frogmore. The three of them discussed a wide range of topics, from investment opportunities and lending habits to the fallout of the recent general election.

Read the whole debate in the June issue of PERE.