Portugal GV NEST fund, update

For those who are worried that the NEST fund will be closed for subscription soon, I just received an email from the fund manager saying that it might be extended to Jan 11, 2021.

I already invested in the fund. There will be a general assembly soon. I suppose the purpose is to approve the extension. Is an extension in the interests of those who already invested in NEST?

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Yes! It is our top one or two funds at the moment. I’d love the opportunity to chat with you and pick your brain if you are available.

My armchair guess is that this is in the interest of investors and managers alike. I can think of a few hypothetical motivations:

  • There is not enough capital invested to achieve the desired diversification or economy of scale
  • There are big, attractive deals that are only partially funded
  • Prior investments have lost value; new opportunities are priced attractively and buying them with fresh investor money will improve the portfolio’s average cap ratio
  • COVID has gummed up the administrative works worldwide and interested investors are pleading for more time to get their funds assembled
  • COVID has gummed up the administrative works and acquisition deals are stalled; the opportunity cost of waiting to collect more capital is insignificant in comparison to the benefits (consider with the first point above)

I can’t think of any unfriendly motivations for this move, but I’m a novice to this kind of intrigue and would be glad to know the playbook if this is a classic formula ruse.

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I’d ask if any investments have been made yet and how much capital is paid in. I do imagine there are new opportunities at better valuations of course.

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I’d much appreciate any and all info you can share about the NEST fund. Thank you!

Thanks a lot for the suggestion and questions! I invested in the fund but I did not do much homework. The NEST fund looked good to me large because they already had track records, and the fund was well subscribed. The 50% profit sharing gives property advisors strong incentives to make good investment. Otherwise the property advisors will make no money. Of course I still cross my fingers.

Hi Jackson, it would be great if you can share details on NEST fund ? I have been doing much more homework on both PT innovation and NEW AGE fund. However, the key issue the both fund are FOF type and less any track record. Although NEW AGE fund seems to be quite conservative and low risk , the fund administrator (QUADRANTIS CAPITAL) looks quite questionable— its registered capital is small; set up in 2016; don’t see their experiences in real estate sector. that’s whey I am wondering their subscription rate.

Julia, Sorry that I do not know much about the two funds that you mentioned. I made my investment decisions a long time ago. The NEST fund has a few unique features. It has fund manager + property advisor. The manager takes a fixed fee. The property advisor take the 50% profit. The success of the fund depends on the property advisor. I was told that the NEST fund had a good track record and. That explains why their subscription is much better than everybody else. But the whole GV fund business is a very new thing. Their track record is limited as well. The NEST fund is a relatively high-risk fund. But the potential return is high as well. It also depends on whether you think it is a good time to invest in Lisbon real estates now.

Got you, Jackson. Many thanks for sharing your thoughts. Shall I know which way you did the investment for GV? I guess it would be RE investment directly? Yeah, you r right, fund option is quite new , that’s why is not easy for investors to justify the risk.

Thank you for the heads up Jackson.

I have done a thorough search of the funds in the market and it appears that there is a few very interesting funds coming up.

I did look into the NEST and spoke with two different law firms about the fund.

Apparently this is not the first time they are extending the subscription period, it happened once again a couple of months ago.

I was told that they started off with a target of collecting 100,000,000 euros, but only ended up with a small fraction of that. Apparently this is their move out of desperation to be able to reach a critical mass.

I did come across two red flags on the NEST fund in my research,

  1. The properties they claimed to have in the fund were not in the fund, and they were only able to acquire one property, although they advertised a number of very attractive properties, which they will never be able to get into the fund.
  2. They claim to be applicable by American citizens, but I was assured they are not prepared for that and that even if we can subscribe at the beginning, we will surely face repercussions in the near future.

These two were enough to make me steer clear of the NEST fund to be honest. Here’s my two cents, hope it was helpful.

Hi Matthew:

Your response on NEST is very helpful ! I am told by their email that the subscription period might be extended to extra 3 months. The fund raised around 25Mn , which might be supposed to be the good one among various funds on the mkt. I am curiously on how to get to clarify if the properties NEST claimed on the presentation will be on the fund pool. Depend on the lawyer or any other investigate ways?

Thanks again!

Hi Julia, honestly there were some stuff I liked about the NEST, but there were a little more that turned me off regarding their value proposal. Here were my thoughts:

I liked:

  • The property they have in Alcantara looks really nice (but it is not in the fund yet)

  • They have had a fund before (track record)

I did NOT like:

  • They aimed to raise 100,000,000 Euros, but apparently they do not even have a fraction of that

  • They extended their deadline once and there’s talks that they will extend it once again now (October 2020), I would be pissed if I subscribed to it in early 2019; to me, this is a clear sign that their statements do not mean anything and they just want to use these deadlines to rush clients with urgency

  • They focus on commercial real estate properties, which will quite surely be dead for a couple of years once this COVID period is over

  • They have too optimistic targets

  • They have not closed on the properties they claim to have in pipeline for over a year now

  • The developer is selling off most of the properties on to the fund, for a handsome profit, while the subscribers are paying for it

  • Taking 50% of the profits is just UNHEARD OF.

As for the properties on the presentation getting on the fund pool, I was hoping to see them get some of the assets by now, it has been one and a half years since they started raising the funds. But it seems that they were not able to get any of them but one. Unfortunately there is no way to make sure that they will get those in the fund pool… :frowning:

Hope this was helpful, let me know if there is anything I may answer, I dig pretty deep into these funds over the last few months. :slight_smile:

I think I wrote this somewhere else, but … I don’t think the 50% is entirely unreasonable. The issue is that you have to expect a 2/20 charge or something like that, but if you’re dealing in illiquid assets that are being marked to market on a yearly basis with relatively low or no turnover, it might not be practical for the manager to charge a 2/20 fee. If all the gain is in valuation of the underlying properties, then there’s no way for the manager to extract the 20% performance gain without selling property to raise the cash.

20% of profits every year, versus 50% of the total charged once at the 6 year mark, might not end up being all that different, really. It just depends on the performance profile.

All the delays would bother me. But this is also a difficult year to attempt to do deals too.

Let’s face it, all these funds are a crap shoot. Bound to be. And frankly this is how it is in the hedge fund world. You’re giving money to someone based on the manager’s track record, not the fund’s track record, because the fund has to start somewhere. They’ll raise money for a while, then it takes a while to close, then you have to actually do the deals. There might even be clauses in the management regulations that prohibit them from acting before subscriptions are closed (I don’t know, you have to read the regs for the specific fund). If you want safe, you’re in that New Era fund which is just a fund of funds on top of ETFs, so at least you know what you’re getting into and that it can be gotten into, and really what you’re evaluating is the underlying ETF not the fund.

Hi Jeff,

I would agree with your on Nest fund, which presents obviously more risky than NEW Edge, the later one’s portfolio is 40% JP global bond+60%iRE fund. However, I am still struggling to identify fund manager itself —Quadrantis’ credentials. Quadrantis is also a very new VC with small register capital, and it’s hard to find more proved track record. That’s probably a common issue on Portugal VCs.

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Hi Matthew:

Many thanks for your comprehensive view!

Actually I think 50% accumulative ROI would be reasonable assumption for a 6-year closed end fund on RE sector. Their assumption is based on both rental income forecasting and capital appreciation over next 6 yrs, which is not unreasoning under normal business perspectives. However, the trikes are

  1. as you emphasized, the key challenge is no one knows when the targeted commercial properties would be really acquired and put in their basket. I note their presentation marked only ONE project had been acquired, while rest all of others are at negotiating stage or even not be kicked off.
  2. Subscription period is too long. From April 2019 till now, the fund raising has yet hit their expectation. I don’t know which resources you got re the goal of 100,000,000 Euros?

Originally, I am quite interested in fund option rather than investing in RE directly cos it’s simple, transparent, no tax issue and other complicated fee etc. However, after reviewing several fund proposals, I have to say the fund option is still quite skeptic. I am now studying New Age fund, and hopefully to find something different…

If you learn something different or interesting, do share. That idea of a 1% max upside but effective 100% down exposure… that just seems wrong somehow, like I misunderstood something.

I am with you on almost all points.
I was also curious about the New Edge, read your comments on the other thread and the risks seem too high.

Definitely a no go with NEST, too many red flags for me.

I’m curious to hear more about Blue Crow.

But I feel that my mind will push me towards real estate eventually.

Yes, you r right. I have the similar feeling with you. The more I study on these funds, the more uncomfortable I am.

  • NEST. No

  • NEW AGE, almost decide to skip. However, I still curiously wanna know what assumption or basis is re their claimed asset allocation on the presentation? That’s why I wanna speak to a sales representative from third companies.

  • Bue Crow: waiting for more info.

If buying residential unit/apartment directly by individual , I think it’s actually quite costly as it’s normally involved too much heavy work on maintenance and letting etc. I am now studying on Merchan’s RE project: Renaissance Lapa Hotel.

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New Edge makes less and less sense to me. The document says explicitly that it’s to be a 60/40 split of CAPC and JPM-bond fund. But clause 20 of the MR says that the fund may invest in listed companies only in exceptional circumstances. CAPC is not a listed company? it’s a marketed fund. the MR just makes no sense versus the presentation. and the return model just makes no sense. I almost want to talk to a rep from quadrantis for a while to make them explain it.

@pigletjulia, https://www.squaream.pt/en/products-services/patrimonio-crescente/ this is the CAPC fund. the JPM fund is just the JPM listed bond fund.

I assume everyone’s seen the Bluecrow webinar and therefore you all have the same basic information now.