Former investment management executive Jeff Baehr, who founded and ran family office hedge fund Empiric Asset Management, has launched his own alternative asset management firm allowing institutional investors and family offices to make direct investments into private equity, mezzanine and real estate deals.
New York-based RueOne Investments will serve as a principal investor in deals that its accredited investor clients can participate in on a deal-by-deal basis.
Baehr, who has also worked as director of research at fund of hedge funds ARIS Capital Management, told PEI that he’d seen, going into the financial crisis, a misalignment of incentives between investors and managers.
According to Baehr, if fund managers collect fees on unrealised profit, they may lack incentives to continue to actively manage their investments, which could lead to lower performance. He saw growing interest among institutional investors to make direct investments for better fee incentives and transparency, leading him to establish RueOne.
He also noted that in good times, GPs’ standards tend to go down and they “do deals they probably shouldn’t do” in order to raise more money and generate fees, which might also impact returns in the long run.
As PEI previously reported, independent sponsors and other professionals raising capital on a deal-by-deal basis have increased dramatically in recent years. The growth is fuelled by the need for incremental proprietary dealflow amid heightened competition, and greater scrutiny of comingled funds from limited partners and regulators.
As a principal investor, RueOne puts its own capital in every deal, and splits the investment costs with the deal sponsors who bring in investment opportunities. Baehr differentiates this from being an anchor investor, which he said implies investing “a very large” portion into every deal.
“We approach every transaction from the standpoint that it should meet our criteria as investors, too,” Baehr said. “We invest a significant amount of our capital across all of the deals we do, which should give our investors greater comfort that our interests are aligned.”
RueOne’s clients are not charged a management fee on committed capital but only on deployed capital, according to its website. Baehr said his firm’s capital comes from its principals, board members, and council of advisors.
Institutional investors and family offices can choose to invest or turn down a deal as they wish through a web-based platform. When RueOne finds an investment opportunity through its deal sponsors, it also presents to its clients its due diligence process and its overall analysis of the deal on its web portal.
“Our goal is to do two deals a month,” Baehr said.
RueOne’s current investment offerings include a multifamily property investment in the south-eastern US, in which the firm is seeking to invest $6 million total including capital from clients, and a hotel acquisition for $5 million in the north-eastern United States, according to its website. Baehr said these two investments are expected to close shortly.
Along with the launch, the founder and former managing director of Dyal Capital Partners, Jeffry Brown, was appointed to chairman of RueOne’s board, RueOne said in a statement. Dyal Capital, a subsidiary of Neuberger Berman, specialises in making minority investments in alternative asset management firms.