When venturing into the world of investment as a fund manager, you face a pivotal decision: should you focus on doing your own deals or raise capital for others?
Both paths offer distinct advantages and challenges, and understanding these can help you make informed choices that align with your goals and strengths.
At Avestor, we aim to prepare you for making such important decisions. Being well-informed is crucial for choosing the right path for your investment journey. In this blog, we will explore the key considerations for both approaches to help you make the best choice for your career.
Understanding The Two Paths
Doing your own deals involves identifying, acquiring, and managing investment opportunities independently. This approach grants full control over the investment process, allowing managers to implement their strategies without external influence.
Raising capital for others, on the other hand, means sourcing funds from investors to finance third-party deals. Here, fund managers act as intermediaries, matching investor capital with promising opportunities. This model emphasizes capital raising, investor relations, and due diligence over direct deal management.
Learn More: How To Raise Capital Like A Professional?
Advantages & Challenges
Whether you choose to pursue your own deals or raise capital for others, each option comes with its own set of pros and cons. Let's discuss them in detail so you're well-informed before making any decisions.
Advantages Of Doing Your Own Deals
- Autonomy and Control: Managing your own deals allows for complete control over the investment process. You can select properties, set timelines, and execute strategies that align with your vision.
- Direct Profit: With no intermediaries, the potential for higher returns increases as profits are not shared with other parties. This direct approach can be more lucrative for seasoned managers with a strong deal pipeline.
- Brand Building: Successfully executing your own deals establishes a strong brand and track record. This reputation can attract more investors over time, facilitating growth and expansion.
- Flexibility in Strategy: Fund managers have the freedom to pivot and adapt their strategies quickly in response to market changes, ensuring agile and responsive investment management.
Challenges of Doing Your Own Deals
- Capital Constraints: Securing sufficient capital for deals can be challenging, especially for new fund managers without a substantial track record. This can limit the scale and number of investments.
- Operational Burden: Managing deals end-to-end involves significant operational responsibilities, including property management, tenant relations, and maintenance, which can be time-consuming and complex.
- Risk Exposure: Direct involvement in deals means bearing the full brunt of any risks or losses, which can be substantial in volatile markets.
Advantages Of Raising Capital For Others
- Scalability: Raising capital allows managers to participate in larger, more diverse deals than they might afford independently. This scalability can enhance returns and strengthen your portfolio.
- Reduced Operational Load: By focusing on capital raising, managers can avoid the day-to-day operational challenges of deal management. This approach allows for a more strategic focus and less hands-on involvement.
- Diversified Risk: Investing in multiple deals through third parties helps spread risk across various assets and markets, reducing the impact of any single investment's poor performance.
- Leverage Expertise: Partnering with experienced operators allows fund managers to leverage specialized knowledge and expertise, enhancing the potential for successful outcomes.
Challenges Of Raising Capital For Others
- Dependency on External Parties: Success depends on the performance of third-party operators. If they underperform, it can negatively impact returns and investor satisfaction.
- Complex Investor Relations: Maintaining strong relationships with a broad investor base requires excellent communication and transparency. Managing investor expectations can be demanding.
- Fee Structures: Fee-based compensation models may not be as lucrative as direct deal profits. Fund managers need to carefully structure fees to ensure sustainability and investor satisfaction.
Learn More: Pros and Cons of Starting a Fund for Your Next Capital Raise
Making The Right Choice
Choosing between doing your own deals and raising capital for others depends on several factors:
- Experience and Expertise: Assess your strengths. If you have substantial experience in deal management, doing your own deals might be advantageous. Conversely, strong networking and capital-raising skills may favor the latter approach.
- Risk Tolerance: Consider your risk appetite. Managing your own deals involves higher risk but also higher potential rewards. Raising capital for others can mitigate risk through diversification.
- Resource Availability: Evaluate your access to capital, network, and operational resources. Doing your own deals requires significant capital and operational capacity while raising capital focuses more on networking and investor relations.
- Long-term Goals: Align your choice with your long-term vision. If building a brand and direct control appeal to you, managing your own deals might be the way forward. If scalability and leveraging external expertise resonate more, raising capital for others could be more suitable.
Let Avestor Help You Set Up
Whether you opt for the autonomy of managing your own deals or the scalability of raising capital for others, informed decision-making is key to thriving in this dynamic industry.
At Avestor, we provide the tools, resources, and expertise to help you succeed in either path. Reach out to us to explore how we can support your journey in fund management.
Book a demo call with us here to understand how you can use the Avestor advantage.
