While the potential rewards are compelling, evaluating emerging sponsors to mitigate risk is critical. Here are several criteria to consider to get you started.
Audited or Transparent Financials: An emerging sponsor may not have audited financials but their financial statements should demonstrate financial health and operational transparency.
What to look for: Clear documentation of revenues, expenses, and capital management practices. Financial stability is a must for any sponsor entering the retail channel.
Track Record of Raising Capital: Even if a sponsor is new, their leadership team usually has extensive experience in successfully raising and managing capital.
What to look for: A history of raising capital for similar projects or a leadership team with verifiable expertise in capital markets.
Strong Distribution Partners: Emerging sponsors need robust relationships that national accounts professionals and seasoned industry wholesalers can provide to gain traction in the retail channel.
What to look for: Evidence of established distribution partnerships and a strategic plan for scaling their reach through broker-dealers, financial advisors, and RIAs.
Their Team: The sponsor’s team is one of the most critical indicators of their potential for success.
What to look for: A team with diverse expertise, including experience in asset management, acquisitions, compliance, and investor relations. Leadership with a mix of industry veterans and fresh talent is often a good sign.
Third-Party Due Diligence Reports: Reputable sponsors invest in third-party due diligence reports to build trust with broker-dealers and advisors.
What to look for: Comprehensive reports from reputable due diligence firms that assess the sponsor’s health, product structure, operational practices, and overall credibility.
Clear Value Proposition: Emerging sponsors must articulate what differentiates them from larger players.
What to look for: A compelling value proposition highlighting unique market opportunities, innovative strategies, or differentiated offerings.
