Amid headlines filled with billion-dollar fundraises and major deal closes, pfm readers were recently drawn to a much smaller figure: $3 million.
What piqued the industry’s interest is that $3 million, plus damages, is what New Jersey-based placement agency Confido Advisors is suing USAA Real Estate Company for in a lawsuit filed in June – a rarity in the private equity real estate world, and the alternatives space at large.
In the lawsuit, Confido, led by former Credit Suisse executive John Rodriguez, alleged that the San Antonio, Texas-based investment manager withheld at least $825,000 in payment for arranging investor commitments and that it tarnished the agency’s reputation with South Korean investors.
USAA, for its part, told sister title PERE that Rodriguez did provide services for the company, for which he was compensated as agreed and that it was surprised and disappointed that Confido is pursuing this course of action.
Private equity real estate has seen few of these lawsuits as a placement agency could likely feel a bigger reputational hit by suing than it would gain from fees recovered in court. But Confido’s lawsuit shows the firm is not concerned solely with the loss of fees. The placement agency has built a network of more than 2,000 South Korean contacts and Rodriguez spends 10 days a month in the country. In that sense, Confido seems particularly concerned with its standing among South Korean investors.
Still, both fund managers and placement agents said that Confido’s lawsuit is a rarity. Except for an outlier – a New York-based placement agency infamous for a string of lawsuits years ago – one executive said that in his decades of doing business, he had not heard of a disagreement ending up in court.
Along the course of doing business, he said he encounters one issue annually that entails more than a casual conversation about appropriate fees, and once every decade the discussion may turn contentious enough to consult a lawyer.
The dispute may include how many meetings were scheduled, if the investor closed on a commitment and who ultimately was responsible for the closing, details that underscore the importance of careful record-keeping for both parties.
Rather than taking it to court, though, both sides usually compromise. In the few cases where compromise is not possible, either party – typically the placement agent – may simply walk away and leave money on the table. One US placement agent recalled being left out of $4 million of fees with one GP; rather than go to court, he decided to take the loss and not do business with the GP again.
In every capital raise, there is room for disagreement, but the industry’s relationship-driven dynamic means reputational risk will ensure these lawsuits remain few and far between.