Multi-manager fund eyes consultant

Real Estate Alert, March 31, 2004

An Atlanta investment firm is taking the unusual step of hiring a consultant to help it launch a real estate fund of funds that would have up to $500 million of equity.

Global Asset Alternatives is in talks with Townsend Group, which would serve as the consultant--or, technically, the "sub-advisor"--to the multi-manager fund.

Townsend would help Global Asset form an investment strategy and select real estate funds in which to invest. It would also provide due diligence and cash management services. The vehicle would have $250 million to $500 million of equity.

While institutional investors routinely hire consultants to help them devise investment strategies, operators of multi-manager funds typically handle such duties in-house. But Global Asset, which is eager to get into the fund-of-funds niche, lacks some of the resources needed to gauge the market and track the performance of various fund managers.

Kevin Lynch, principal and co-founder of Townsend, confirmed the discussions with Global Asset. He said that if an agreement is reached, the Cleveland firm would play the same role it does with pension-fund clients. "If you think of the mechanics and the structure, it's identical to what we've been doing for 20 years in the general consulting business," he said.

The assignment could lead to similar contracts with other operators seeking to break into the multi-manager market, according to Lynch.

"We saw it as a mentoring opportunity ... a forum to assist emerging managers," he said, adding that Townsend is also talking with "an offshore financial entity" looking to set up a fund of funds.

Townsend is rumored to have occasionally considered launching a fund of funds itself, but ultimately decided not to because of a potential conflict of interest. Operators usually invest in their own funds, a step that theoretically could have left Townsend in the position of competing for investments with clients that it advises.

Global Asset, which declined to comment, was founded in 2001 by Dennis Pemberton, a former managing director at Shoptaw & Garrard. It initially planned to raise a small real estate fund of funds, with equity contributions from wealthy individuals unable to meet the minimum investment levels of opportunity funds. Global Asset later dropped that idea and now plans to raise capital from institutional investors for a series of multi-manager funds, which would invest in real estate, private equity and hedge funds. The firm targets institutional players that don't have in-house investment expertise and are attracted by the diversity and efficiency offered by multi-manager vehicles.