As our investors already know, Guardian Multifamily raises capital to purchase large apartment buildings through the vehicle of syndication. For those who don’t know, syndication is a popular method for raising capital in the world of finance. It involves a group of investors pooling their resources to fund a particular investment opportunity. Traditionally, the single-asset syndication model has been the go-to choice for investors. However, a newer approach, the Fund of Funds syndication model, is gaining traction due to its unique set of advantages. In this article, we will explore five benefits of a Fund of Funds syndication model compared to the traditional single-asset syndication model.

1. Diversification and Risk Mitigation

One of the primary advantages of a Fund of Funds syndication model is diversification. In a single-asset syndication model, investors are typically exposed to a single investment opportunity. If that opportunity fails or underperforms, investors face significant risks. In contrast, a Fund of Funds pools capital from multiple investors to invest in a portfolio of opportunities. This diversification helps spread risk across different markets, asset classes, and operators, ultimately reducing the impact of a single investment's failure. Being able to spread that risk across a range of investments limits the impact on the fund if one asset is underperforming, which increases the chances of overall success. 

2. Access to Expertise

Fund of Funds are managed by experienced professionals who have a deep understanding of the market. These experts carefully select and manage a portfolio of investments, leveraging their knowledge to make informed decisions. This expertise can be invaluable, especially for investors who may not have the time or expertise to evaluate individual investment opportunities in detail. The managers of the funds are able to leverage their relationships with industry experts across a range of asset classes to carefully choose which investments fit their investors’ risk/return profiles.

3. Accessibility

Single syndication models often require investors to commit significant amounts of capital to participate. This can be a barrier for smaller investors or those looking to diversify across multiple ventures. Fund of Funds models allow investors to participate with smaller amounts of capital, giving them access to a more extensive range of investment opportunities. As an example, say two separate investment opportunities each require a minimum of $100k to participate. If you wanted to join them both you would need $200k. With a diversified Fund of Funds model you could potentially invest in both assets with a single $100k investment, giving you access to opportunities you would not otherwise have.

4. Reduced Administrative Burden

Managing investments in multiple individual syndications can be complex and time-consuming. Investors in a Fund of Funds benefit from streamlined administrative processes. They deal with a single fund manager who handles all the necessary paperwork, communication with investee companies, and reporting. This simplifies the investment process and reduces the administrative burden on individual investors.

5. Enhanced Due Diligence

Fund of Funds managers conduct extensive due diligence on the ventures they add to their portfolio. They thoroughly assess business plans, financials, and the management teams of the target companies. This rigorous scrutiny helps filter out high-risk ventures and ensures that the investments are more likely to be successful. Vetting operators is more important than the investment itself. The managers should put more of an emphasis on who they are investing with than what they are investing in. 

While both the single syndication model and the Fund of Funds syndication model have their merits, the latter offers several advantages that make it an attractive option for many investors. The diversification and risk mitigation, access to expertise, accessibility, reduced administrative burden, and enhanced due diligence features make the Fund of Funds model a compelling choice for those looking to participate in syndicated investments. As the investment landscape continues to evolve, the Fund of Funds model is likely to gain even more popularity among investors seeking a balanced and diversified approach to syndication.

Stay tuned to the growth and pivots of Guardian Multifamily as we strive to provide our investors with above average, risk-adjusted returns in an otherwise uncertain market.

On behalf of all of us at Guardian Multifamily, we appreciate you taking the time to further your education and we hope we provided value. Do you have questions about syndications, the Fund of Funds model, the future of Guardian Multifamily, or anything else real estate related? We’d love to hear from you!