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August 31, 2015
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One reliable measure of a manager’s track record is whether institutional investors choose to re-invest in the manager’s follow-on funds.

Walton Street Capital, for its part, has endured a plummeting reinvestment rate since 2011.

Only four out of thirty public pension funds known to have invested in Walton Street Real Estate Funds V or VI decided to reinvest in Walton Street Real Estate Fund VII, which closed fundraising over one year late and 36% under target.

This is not the first time Walton Street’s principals have seen investors vote with their feet. In the 1990s, Walton Street’s predecessor firm, JMB Realty, failed to win back many of its large institutional investors following the spectacular collapse of Cadillac Fairview, its largest investment.

When a manager has a troubled or controversial history, due diligence means more than just checking recent investment returns against benchmarks.

Investors should be on the lookout for “red flags” that could indicate issues or problems not reflected in managers’ pitch books and presentations.

A failure to retain investors in follow-on funds is one such red flag.

Questions to Consider

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