Trust, but Verify (or How to Vet a Sponsor)
Good Sponsor, Bad Deal > Bad Sponsor, Good Deal
If you invest in private markets, everyone wants your capital, from a first-time real estate syndicator to BlackRock.
Increasingly, you don’t even need to meet the traditional accredited investor thresholds. Alternative asset managers are aggressively courting the “mass affluent,” and this is just the beginning.
For many sponsors, private investors represent the next frontier of untapped capital:
That raises a question:
How do you vet the people asking for your trust (and your money)?
Unlike public markets, private placements offer limited transparency and minimal regulatory oversight. As SEC Commissioner Hester Peirce put it:
“In private markets, information asymmetries are greater and investors must rely more heavily on their own due diligence.”
Institutional LPs have resources (ILPA, Preqin, PitchBook, etc), and entire teams dedicated to diligence. Retail investors? They’re on their own.
That’s why today’s article focuses on the most important part of private placement investing: due diligence on the sponsor.
We’ll walk through what to evaluate, what to ask, and what red flags to take seriously. Because a great sponsor managing a mediocre deal almost always safer than a great deal in the wrong hands.
This conversation would not be complete without a tangent on incentives:
Brief reminder before we jump in: this content is for informational purposes only and does not constitute legal, financial, or investment advice. Always do your own due diligence and consult with a qualified advisor before making investment decisions.
1. Track Record & Experience
I once had a call with a GP and casually mentioned a nearby deal being syndicated by another group. I asked if they’d bid on it. He said, “No, we didn’t. We own an asset two blocks away and know the area well. The neighborhood doesn’t support the assumptions you'd need to make the price work.”
That’s the kind of insight you only get from real experience.
✔️ What to look for: