Find GPs before you find deals

Happy Friday!

Over the years, one of the most common questions I’ve gotten from LPs is, “Do you have any advice on finding GPs?”

I’ve sat on this draft for over a year now, but I finally decided to set aside some time to dig into what I think is a fairly complicated (and perhaps controversial) topic.

Today we’ll discuss:

• Why this GP search is more important than more LPs realize

• The best places to find new GPs, and which places you should try to avoid

• Switching the LP mindset to “relationship first, investment later”

• “This seems like a big effort, is it really worth it?”

1) Why the GP search is more important than most LPs realize

First I’ll mention a few articles that are (more or less) required reading for you to fully appreciate the next few lines:

• 10 reasons why deal flow rules the world

• Does due diligence matter?

• An investor’s mindset and principles

Whether you’re ready to admit this or not, you’re an LP for one reasons - you’re in search of returns that are above what you can get elsewhere. Many LPs say they’re in the business because they enjoy meeting people, like helping others, enjoy the due diligence aspect of investing … and while all of that may still be true, your investment isn’t into a non-profit venture and your ultimate goal is returns.

I go into this much more in the articles above (particularly in 10 reasons why deal flow rules the world), but you’d be making a massive mistake by assuming that the best deals will just fall in your lap.

While it’s true that this search takes time (more on that later), it’s quite hard (perhaps impossible) to be a good investor without speaking to new people, seeing new perspectives, and analyzing many investment opportunities. I tried to quantify this effort in Minimum LP Investment Size, where I essentially explain that small check sizes don’t make much sense for the vast majority of LPs due to the effort involved in finding the right deal.

To close, I think most LPs spend a lot of time looking at the deal’s financials, reporting packages (after cutting a check), or perhaps asking whether the GP has made a capital call prior to investing (I’ll try to post soon on why I don’t think this is a great practice) and this essentially misses the biggest driver of long-term results: who you’re investing with.

In private real estate, the GP matters far more than the spreadsheet - this is why I explicitly put the execution pillar as the most important pillar of LP investments. Two sponsors can buy similar properties in the same market and end up with completely different outcomes based on underwriting discipline, asset management, and how they handle things when the plan doesn’t go perfectly.

While it’s true that professional allocators have many existing relationships, they also understand that seeking out alpha in a marketplace that’s private takes an outbound effort. They’re in the business of finding the best deals, and you should take that same mentality - finding anything great takes effort.

2) The best places to find new GPs (and which to avoid)

I’ve gotten this question so many times and the truth is I didn’t think there was a great answer for it. Here’s what I used to tell people, along with the many caveats of why each strategy is suboptimal:

• Google

• Last time I tried this the results were suboptimal, and this tends to favor GPs who are great at marketing/SEO. Nothing wrong with that (every GP is - at the end of the day - is in the business of raising and deploying capital), but I’ll just remind you that these circles rarely overlap

• Ask some of your friends

• This is likely the best option, but you’d be surprised by how many times a friend thinks they’re an expert while they’re really not - you need to be careful here

• Talk to some folks at your country club

• Not a terrible idea, but you don’t even know the other person well …. and who knows whether the person you’re talking to knows what they’re doing!

• Conferences

• This is effective in the sense that you can meet many people at once, but you (1) need to take time off of work and (2) ensure that the conference GP attendee is high quality

• Podcasts

• Biggest challenge here is that most podcasts are usually ran by GPs which effectively use it as a marketing strategy which introduces quite a bit of bias (just being honest, sorry)

One of the biggest reasons why I started GP-LP Match is this exact problem - LPs have a really hard time finding quality GPs.

This past week we rolled out an entire GP Search feature that gives LPs free access to our entire database of GPs with available filters such as:

• Track record

• AUM

• Property type

• States the GP is buying in

• HQ state (in case you want to meet the GP in person)

• Risk type (development vs value add as an example)

• And the list of filters goes on and on

We’ve gotten several power LP users of this tool already, and the tool will continuously improve with time. I’m clearly biased when I say this, but I don’t really know of a better way to find new GP relationships at scale than our newly released tool - if you do, please let me know! I suppose you can be the judge - don’t forget to send us some feedback once you use it, I’m at aleksey@gplpmatch.com.

3) Switching the LP mindset to “relationship first, investment later”

I’ve found that many LPs are hesitant to reach out because:

• What if I don’t invest

• I’m not done with diligence yet

• I’m not sure I understand everything here

A simple shift in mentality here can drastically improve long-term results - as an LP you’re in the business of improving your investment acumen. The only way to do this is practice and have conversations.

You might not even like this deal that the GP put out, but you might be surprised by something they say in the conversation and learn from it. Their next deal might be of interest, or perhaps something you learned from this conversation will help you access the risk of another deal.

Once you’ve invested in the relationship you can (with measure) go deep - it’s not easy to find great GPs and that’s precisely why expanding your reach on these conversations is critical.

4) “This feels like a lot of effort - is it actually worth it?”

Short answer: yes, massively. But if you don’t have time, then perhaps it’s just not the right time to invest in privates and that’s totally fine!

As I wrote in Minimum LP Investment Size, it takes a real effort to run diligence on investments and if you don’t have time for that, that’s ok. In order to improve the quality of deals you’re doing diligence on, you need to be comfortable with (and have the time for) having many conversations with GPs - this is the only way to improve the “funnel” of opportunities that you end up picking from.

Building GP relationships takes time. You’ll have conversations that don’t lead to immediate investments. You’ll learn about strategies that aren’t a fit. You’ll spend energy upfront without wiring money right away, but that effort will compound with time.

It’s hard to not end with a simple concept - you’re investing in private investments, and as much as this space has opened up over the past decade or so it’s still quite private. The only way to compete in a private market (and win) is get to know people and learn - and before you say “that’s inefficient” I’ll have to remind you that this specific inefficiency is what makes this market so unique and full of hidden gems.

Have a wonderful weekend!

When you’re ready, I could help you in 2 ways - my email is aleksey@gplpmatch.com:

• Limited Partners:

• ***GP-LP Match - ***a simple (and free) way for you to get more deal-flow that matches your precise LP parameters. Join here in under a minute.

• Potential/existing LP positions - advisory work on LP investments

• ***LP Education ***- self paced recordings to learn more about LP investments

• ***LP Community - ***free 2,800+ member LP Investor community on Twitter

• ***Find GPs ***in unique property types, markets, all filtered by their experience level - takes 1 minute to register.

• General Partners:

• ***GP-LP Match - ***a simple (and free) way for you to reach LPs. You can join here in under a minute.

• Deck review - I’ll look over your marketing materials from the perspective of an LP and provide slide by slide commentary to improve your pitch and how your terms compare to market