Trevor Bisset

Feb 22. 12:35

Interview (Part 2 of 2): The USQ Core Real Estate Fund Passes the $100 Million AUM Benchmark

USQ Logo superimposed over a cityscape with blossoming trees in the foreground.

Last week we published Part 1 with Tom Miller, CIO and Keith Downing, COO over at USQ. Here are the rest of their thoughts on crossing the $100m AUM threshold and breaking into the RIA channel.


IF: Another important qualifier for custodial platforms is demand from investment advisors, which seems like somewhat of a chicken-and-egg problem given RIAs’ general hesitation to allocate client funds into alternatives. What worked with the RIA channel, and what were they key challenges?

Tom: The most important thing – you nailed it – remains demand from advisors. Without demand, you go nowhere. We not only had to sell the asset class and make sure advisors understood it, but also the benefits of why you’d use it in a portfolio.

You’re asking the advisor to invest in your strategy, yes, but they also have to do additional work in order to just believe in the product and know how to talk about it to their clients. That education process was of paramount importance, and it’s how we got the placements we did.

I agree there’s a general hesitation to allocate to alternatives. You could argue that core real estate has been around since before stocks and bonds, so we’re not “so alternative” in that capacity. The benefits are certainly there. We stayed focused on the education and that really helped.

Keith: The chicken-end-egg dynamic you described is at the heart of the matter. RIAs are busy and they’re being contacted by a lot of fund managers. They have a long due diligence cycle, so they’re leery of committing resources if a fund may not be available to them within the next 6-9 months. Lots of RIAs will say “that sounds interesting but let me know when you’re on the platforms.” This puts boutique managers at a significant disadvantage to incumbents.

Beyond a little luck, having existing relationships with RIAs that believe in the product and firm enough to go to bat for you with the custodians is impactful.

Tom: The process can be months, or a year, or two years. You can’t get discouraged, you have to stay at it and keep educating, and push to broaden the appeal to your new fund.


IF: We just spoke to a manager that offers two credit-focused interval funds – they’re exclusively distributed to independent RIAs, and it’s straight-up “smile-and-dial.” They pound pavement hard, and they’ll talk to RIAs 3-4 times over a year before they earn an allocation.

Tom: Oh yeah. That’s pretty good if they’re only having 3-4 conversations. Some of our larger clients I’ve been on the line at least ten times with so…it’s a process.


IF: Now, after just over 4 years of dedicated commitment from your team, you’ve crossed the $100 million AUM threshold. Does this change anything for USQ and the Fund, or unlock any new opportunities? What does it feel like to be on the other side?

Tom: We’re not finished yet by any stretch, but this is proof of concept. We needed to build a solid foundation first. From a track record perspective, we’ve performed exactly as expected. We’ve delivered a solution to the market that we knew we’d deliver as expected.

In terms of changing the fund, we’re not going to change the investment strategy. Does the milestone unlock opportunities? Perhaps. Some of the big national RIA firms and aggregators won’t take a look until you’re at $150m or $200m. There are certainly opportunities there, but in terms of how we invest money, or the strategy, we have no intentions of changing that in any way.

Keith: The only thing I would add regarding the $100m threshold is that advisors don’t want to represent too large of an investment in the fund as that ties into concerns about liquidity. Not just for an interval fund, but for any product. If they’re 50% of the fund and they want to make a change, they could have a difficult time getting all their money out the next quarter.

The other business concern is RIAs want to see that the fund is viable. Nobody wants to invest in a fund, explain to their clients as to how and why it fits in the portfolio, then have to go back to them in the future and explain why the fund is winding down, and why they’re forced to go out and do due diligence on a similar product. The $100m threshold is important, but advisers also want to see that the fund is continuing to grow across a broad base of advisors and not just a handful of investors.

Having the backing of a strong parent company helped address many of these concerns. I also want to credit Craig Snyder, our head of distribution, for building that trust with advisers.

It feels like this is just the beginning. The room for growth here is tremendous. Advisors are realizing what a benefit our product is to their portfolios.


IF: Going off-script a bit, but are you having conversations about wirehouses?

Tom: Not so much. There are significant costs required by that channel.


IF: Just 25 grand to start the conversation, right?

Tom: Yeah, that’s pretty light. Some are in the $250k range for the benefit of talking to their due diligence team. We’re not there yet and not sure we’ll ever be there. Those wires are also built for huge distribution forces, and we run pretty lean, by design. Our distribution force will never be 55 people around the country going into every office that they can – today we have 2 people in distribution, maybe we get to 5-6 institutional-quality relationship builders, but that’s going to be it. We don’t intend to hire a wholesaling force that you would need to service the wirehouses.

If you do the right thing and you’re willing to be patient and build strong relationships, you can build a great business. It was critically important to be thoughtful about our early hires and create the right mix of people to get this figured out. The fact that every one of us has 15+ years of experience heading into this experience was a big advantage.


IF: It’s a delicate balance of “early adopter” on one side, and “FOMO” on the other side, and hitting that $100m threshold seems to help.

Tom: Yeah. We focus so much time on education, and making sure we’re covering RIAs that are like-minded, to ensure our growth trajectory is strong because of that pipeline. We have a number of RIAs doing business with us now and we feel good about the positioning moving forward. It’s about growth now, but you don’t want to wake up tomorrow and see a sudden billion dollars coming into the fund – it’s about the right, strategic growth.


IF: We appreciate the time today, and congratulations again. What’s next for USQ, what should people be on the lookout for?

Tom: This is still our flagship and we think this fund should be a core allocation to every portfolio, so we’re going to continue to grow it. What’s next – we’ll likely go into a core-plus-type strategy for real estate. We think the core building block is great for most RIAs, but for those who can tolerate more risk, that’s the next segment of the market. Most of our competitors are in that more risky bucket, so we’ll step up into that realm in the future.

USQ’s original press release about their $100 million milestone can be found here.


If you’d like to join us for an interview, feel free to reach out at alpha@intervalfunds.org. Or, follow @interval_funds on Twitter and shoot us a DM.

Note: This article is for information purposes only, and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or any other product or service referenced herein.