I am looking to put $5-10 million of capital to work in MHP investing. I like the sector dynamics and am generally open to a fund structured investment, but think that the 50% carried interest revenue model that has developed among the players in this space is ridiculous…especially for an IRR less than 20%. I pay 10-20% carry on my investments in private equity and get 30%+ post-fee IRR.
Are there any funds out there that offer a more reasonable fee structure? Maybe some of the fund players would be willing to offer a side-car vehicle with scaled economics if I commit to this much capital?
Alternatively, I would be willing to offer very compelling economics including equity earn-in to any experienced owner-operator out there who might have interest in being my operating partner.
Can offer:
-8% preferred return
-Then, 75% to investors, 25% to sponsors
-Once a 10% IRR on invested equity is reached, 50/50 split
-Additional hurdles to be agreed upon
I think this is what VCSH is referring to. A 50/50 split above 10% IRR is not competitive relative to other syndicated MF investments that are widely available. From your point of view, if you can get it, more power to you. But it’s not something that is going to be enticing to investors who are aware of their other MF syndication options.
Jaydub is correct. The 75/25 and the 50/50 splits being discussed and offered by funds in this space are called “carried interest” or “carry” in the private equity / hedge fund universe. Speaking from experience having been in investment banking and private equity my entire career, a 50% carry for the general partner (the operating partner in this case) is unheard of in the professional institutional investing world. It seems like funds in this sub-sector are able to get private investors to bite on that but the norm in the private equity universe has historically been a 20% carry after an 8% preferred return. That said many PE funds are going lower than that traditional 20% carry to stay competitive these days. To put it in perspective, I have investments in a Blackstone (the largest private equity fund in the world) real estate fund where I am paying a 12.5% carry to the GP after an 8% preferred return…and they are delivering an IRR north of 20% on a consistent basis.
As Jaydub said - if the funds out there can find investors willing to pay them a 50% carry - more power to them! Capitalism is a beautiful thing!
It is my understanding that typically in the institutional investing space there is in addition to the 20% carry a 2% fee on assets under management. Furthermore, it should be kept in mind that it is not all about return but risk-return ratio. These factors may weigh differently in the MHP space. Opinions may vary.
I think the industry has to mature/grow more before you can obtain your desired hurdles. The reason you’re seeing 20% carry in your world is because of the extreme saturation of PE funds all competing for the same funds and deals. I can name 100 corporate PE funds off the top of my head. But how many MHP funds can you name?
You get as much carry as you want if you own parks outright…perhaps that is the optimal route for you. Many here will attest to the passive nature of park management…
@Brandon it is my understanding that most or all of the funds in the MHP space also charge a 1-2% annual management fee (in line with traditional PE) in addition to a 1-2% acquisition fee (one time when the put the committed dollars to work). Totally agree with your comment on risk-return profile…which is why I am continuing to pursue to the space (although I contend that the de-risking in this asset class isn’t enough to demand a success fee that is more than double that of other MF funds that are investing in Class B and C MF).
@TripleNet I think you are absolutely correct. This is more about the maturity of the asset class and the competition (or lack thereof) driving the supply / demand curve for carry pricing. You are also probably right that my best bet may be to find an operating partner and do it ourselves (though that obviously comes with all sorts of fun…)