How Private Equity Funds use financial engineering to enhance their Fund IRRs ?

The Quick Answer: Subscription lines ("Sub lines")

A thread on how these sub lines actually work & artificially boost fund performance 👇 👇👇 Let's begin by defining what a sub line is:

These are lines of credit extended to a PE fund by a bank & are collateralized by LP commitments made to the Fund.

The size of these lines generally vary between 10% & 35% of the overall fund size.

We live in unprecedented times..

How do the world's largest capital allocators think about investing in an inflationary environment ?

A thread 👇👇 First up, let's set the stage to truly understand why we are at a significant moment in economic history.

For 40 years, we've watched inflation and interest rates come down. They bottomed in Q2 2020 when both became ~0. Since then, we've seen a sharp reversal.

@EllliotttB 1/ Overall, I think it is reasonable to underwrite some leisure RevPar contraction later this year and the next. But it really depends on the type of asset/market… @EllliotttB 2/ High likelihood that some of the bigger ADR gains in the strongest leisure markets will retreat somewhat when the world is fully reopened and these domestic leisure destinations are competing with the full range of international destinations as well as cruise lines.

Walled Gardens Vs Open Source

Not too many people remember this but there were actually two visions for the Internet in the early days.

One was to have large tech firms build closed ecosystems that would allow users to access content, media, & other on-demand online services. The other was a more decentralized vision that would be dominated by open-source protocols such as HTTP, TCP/IP, and SMTP.

Anyone could build on top of these protocols – be it websites, apps etc.

We all know which vision won. It was Open Source (Web 1.0)

The beauty about real estate as an asset class is in it’s idiosyncrasies.

The key is "Portfolio Construction" with optimum risk-return characteristics.

A thread 🧵 on portfolio allocation & sizing within an institutional real estate portfolio 👇 👇 👇 Different real estate sectors come with different risk-return tradeoffs.

So to begin with, we need a framework to evaluate the quality of each sector.

I use 4 variables:

1) Operating Margins
2) Average length of stay
3) GDP Correlation
4) Technology disruption

Let's dig in.

The Single Family Rental (“SFR”) Gold Rush: An Institutional Thesis

Since the pandemic began, over $15B of equity has been raised by different institutions to invest into the SFR space.

A mega thread on why we might be entering a golden age of Institutional SFR Investing 👇👇 1) The Great Decoupling

A key reason why institutions like Blackrock are able to bid up home prices and buy 1000's of homes is that 'cap rate valuation' has decoupled from 'retail valuation'.