Recently, PERE's Erik Kolb sat down with Jarrod Rapalje of Courtland Partners for an exclusive one-on-one interview in New York. Going “inside the mind of an institutional consultant,” the discussion turned to such hot button issues as investors concerns with transparency, the increasing complexities of reporting and due diligence questionnaires and the biggest topic in private real estate – the future of fees.
While the original interview lasted more than 45 minutes, the video presented here has been edited to 15 minutes for easier viewing. Rapalje intimated that transparency was the most pertinent issues for LPs today [:50]. He added that the need for fund managers to meet investors’ transparency expectations served as a trust-builder, especially when returning for new capital raises.
The interview continued into the challenges of investor reporting as the industry has trended towards significant levels of depth [3:30]. Rapalje discussed when and where managers should “push back” and how a better level of understanding can be achieved between investor and manager.
Along with the reporting, Rapalje also touched on expanding due diligence questionnaires (DDQs) [5:15]. While the industry can expect DDQs to get larger, INREV and ILPA have provided a possible template. The interview touched on which of these two templates has seen wider adoption.
In terms of performance, Rapalje added some candid comments about the importance of being among the top half performers. More importantly, he described the importance of “consistency of returns” in explaining performance, whether stellar or less than promised. For performers that were not in the top quartile, intelligently presenting lessons learned had far more value in this tough capital-raising environment than most would imagine, he explained [8:20].
The conversation then turned to the increased scrutiny on fees and the pressure investors are facing to manage costs [10:20]. This topic sparked quite a buzz as several facets of the evolution of fees were covered. Rapalje shared his passion for “LP collaboration” as investors in the same fund are beginning to work together to achieve cost advantages [11:30]. Given the importance of the topic of fees and when “enough is enough” in terms of breaks, fees were put into the broader context of alignment of interest and where managers can offer value over being just a “profit center” [12:30]. The last section outlined the future of promotes and catch-ups and where downward pressure on fees may stabilize [14:30].