Versus targets new fund of funds at retail investors

Looking to raise $750m from tens of thousands of retail investors, the publicly registered vehicle will invest primarily in open-ended, core and core-plus property fund managers. However, the model could be expanded to closed-ended, value-added and opportunistic GPs in the future.

Versus Capital Advisors has launched a real estate fund of fund that will target equity commitments from tens of thousands of retail investors, as opposed to a limited number of institutional LPs.

The firm, led by former Welton Street Investments executives Mark Quam and William Fuhs, is targeting $750 million for the vehicle, Versus Global Multi-Manager Real Estate Income Fund. But in contrast to the traditional fund of funds model, the Versus vehicle will be publicly registered with the US Securities and Exchange Commission (SEC), allowing it to be distributed through broker-dealers and opening it up to a much broader investment base.

Although the Versus fund will invest primarily in open-ended, core and core-plus real estate fund managers, it is being seen as a possible way of expanding the fundraising environment for other real estate fund of funds. People familiar with the matter said Versus would considering launching a vehicle targeting retail investors interested in investing in closed-ended, value-added and opportunistic GPs in the future if demand for the higher risk profile was there.

According to SEC filings, the fund – which is not yet effective but is expected to gain SEC approval by early summer – will be a closed-ended vehicle, although it will raise money on a continual basis during its life, as opposed to raising equity upfront and drawing down on commitments. The minimum equity investment has been set at just $10,000, with the average commitment expected to be between $50,000 and $75,000. That could result in between 10,000 and 15,000 investors for the Versus fund of funds.

However, in teaming up with Callan Associates and distributor BNY Mellon, Versus' founders argue they are bringing access to institutional real estate managers to ordinary investors.

Speaking to PERE, Quam said there were limited options for retail investors who wanted to target real estate. “You either go buy an apartment building or go into REITs and REIT-model funds. Individual investors have never had access to institutional real estate managers and, at the same time, these managers have never had access to retail capital.” He declined to comment on specifics of the fund, given it still is seeking approval from the SEC.

The Versus fund is expected to charge annual fees of around 3.45 percent, according to the SEC filings on the vehicle. Retail investors in non-traded REITs can pay between 10 percent and 15 percent.

In targeting IRRs of between 8 percent and 12 percent, the Versus fund will concentrate on core-like funds, as well as REITs, real estate securities and debt investments, although it will have the remit to invest in some value-added strategies. Working with Callan, which will act as sub-adviser to the fund, Versus already has earmarked a number of GPs it could invest with, including AEW Capital Management, Cornerstone Real Estate Advisers, Heitman Capital Management, JPMorgan Real Estate, LaSalle Investment Management, Morgan Stanley Real Estate Investing, RREEF and UBS Global Real Estate, among others.

By attracting retail investors, though, Versus has to offer some form of redemption. According to the filings, the fund will offer to repurchase between 5 percent and 25 percent of outstanding shares four times a year, although people familiar with the matter said it likely would be closer to the 5 percent mark.

Quam and Fuhs launched Versus, formerly Welton Street, in 2010, when it first started talks with Callan. Quam co-founded Welton Street in 2005 and prior to that was a partner and co-founder of the non-traded REIT Dividend Capital Trust between 2002 and 2005. He also co-founded in 1998 and prior to that was director of construction and project management at Richard Ellis. Fuhs was chief financial officer of Welton Street and Dividend Capital, and prior to that he spent 11 years at Merrill Lynch in a variety of investment banking roles.

Versus also is advised by its independent directors: Jeffrey Jones, principal at SmithJones and former president and executive director of Ameriton Properties, and Richard McCready, former chief operating officer of NorthStar Realty Finance.