DLP doubling management fees?

[Krentist]

Per an email from DLP, many of their funds are raising their management fees to 2%. For the Lending Fund, that’s a doubling from the current 1%.

Anyone staying the course? Vs jumping ship?

That’s a not insignificant increase in fees, especially since they also lowered their targeted returns ~2 years ago.

[Cameron]

I saw this too. In my case, it amounts to a .25% increase in management fees as I'm over the threshold for the discount in the increase. But yes, not a good combination with lowered targeted returns with an increase in management fees. It has otherwise performed as expected and the monthly distributions with reinvestment options are great. No plans to jump ship at this point but keeping an eye on it. I had been looking at Origin for some other return of capital I am expecting from a different fund in the coming months but their recently having been acquired gave me pause there.

[The White Coat Investor]

Hmmmm....didn't get the email, at least not yet. Mind posting the meat of it?

The trend there has been encouraging larger investments with higher minimums. Is this similar?

[deanyar]

Hmmmm....didn't get the email, at least not yet. Mind posting the meat of it?

The trend there has been encouraging larger investments with higher minimums. Is this similar?

It was an attachment to an email sent to me yesterday. Subject line of email was: Please read - DLP Capital Fund Updates. (Frankly, I did not even notice it until I looked retrospectively after the OP posted this)

"Dear Valued DLP Investor: Thank you for your investment(s) with DLP Capital, and your trust in us as a steward of your financial resources. At DLP Capital, we are consistently evaluating how we can best serve our investors while achieving the returns we have targeted in each of our fund offerings. As a result, we are implementing some updates and modifications across some of our funds. These modifications include: ● We will adjust the minimum required investment in our funds to $200,000.00 (subject to future adjustment at the Manager’s discretion); ● We will increase the maximum capital raise (Offering Amount) across multiple funds; ● We will provide new Note offerings (including 30-day evergreen notes and a three year term note) in multiple funds, including the Preferred Credit and Building Communities funds; ● Our management fee will increase to 2% across several of our funds; and ● We will rebate 25% of the management fee for investments of $1million or greater, and 50% of the management fee for investments of $10 million or greater (in those funds where the management fee is 2%). Specific changes to the Building Communities Fund include: ● The 8% Preferred Return will be paid quarterly as opposed to annually; ● Investments made by the fund will be preferred equity investments or debt. By doing so, there will be equity behind the fund’s investment, which reduces risk; and ● Investments made by the fund will require the sponsor/developer to make current return payments, thus allowing the fund to pay investors quarterly returns. We are not changing: ● Our commitment to underwriting risk and protecting our investors from loss; ● Our management fee is only collected after preferred returns are achieved; ● The return targets across all of our funds remain the same; and ● Investors will continue to earn the same preferred returns in all funds. Please accept this letter as notice of these modifications. The revised fund documents have been updated and are available in your investor portal. If you would like the documents sent directly, we are happy to do so."

[Cameron]

I did like seeing the change of the 8% preferred return on the Building Communities Fund being moved to quarterly instead of once annually. Actually, now that I reread the notice I see it mentions a 25% rebate of the fee with 1 million or more in the fund and I had misread that as an absolute .25% deducted from new 2% fee thinking it would be 1.75% for the Housing Fund when actually I think it would bring it to 1.5% which is what the original management fee was. They seem to be incentivizing much larger holdings with them. My accountant who has some familiarity with these types of funds indicates they understandably want to meet their capital raising targets but deal with as few investors as possible to do so.

[The White Coat Investor]

So does it apply to the lending fund too or just the building communities fund? If the latter, that would explain why I didn't get the email.

[Cameron]

The written communication and the accompanying video from Don Wenner just mention that the 2% management fee would apply to "several funds" without more specifics.

[Krentist]

So does it apply to the lending fund too or just the building communities fund? If the latter, that would explain why I didn't get the email.

it applies to the Lending Fund too.

talked to a rep today who tried to pass the idea that it’s not actually an increased cost bc they’re increasing their targeted returns.

a theoretical targeted return is easy to say, but double management fee is a guarantee.

[The White Coat Investor]

I had a chat with the DLP folks today to clarify the recent changes. I'm also seeing if I can't work out something special for WCIers. Hopefully more to come on that. In the meantime, here's a brief summary of the changes:

1) The funds will be a lot bigger, 2-4X the prior size.
2) They'll be hiring more staff to provide better operations and better service to the investors.
3) Fees will be going up from 1.5% to 2% on the equity funds and 1% to 2% on the debt funds.
4) Minimum investment of $200K per fund is now considered "permanent" (i.e. it won't be going back to $100K)
5) At $1 million per fund investment fees will be 1.5% on all funds. At $10 million per fund investment fees will be 1% on all funds.
6) Preferred and targeted returns have not changed. I pushed back on how can the targeted return to investors be just as high if more of the gross return is going to DLP. On the debt side it's a little easier despite the higher (100% relative/1% absolute increase). Since rates are now higher, they can simply charge a higher rate to the borrowers. On the equity side (where it is a 33% relative/0.5% absolute increase) the hurdle is not as high and they think they can more than make it up with better operations (from that additional staff hired with the higher fees) and possibly leverage (both of which can also help on the debt side). So while it is true that fees necessarily must come out of the investor's return, It's hard to complain too much given that last year's returns absolutely spanked stocks, bonds, and public REITs.

I'll post again if I get some more news.

[Cameron]

Thank you WCI for the clarifications and for advocating for WCIers either currently invested or contemplating investing in DLP Funds.

[Hoopoe]

Again this seems like 1M PER FUND rather than total $ held with DLP? That's a very high hurdle that many WCI members are unlikely to hit any time soon without major hits to diversification. If that's the case I would like stop future contributions to DLP for a while and see how their returns end up with the added fee headwinds. 2% is highest in the industry that I know of, where 1.5% is standard and 1-1.25% is best in class. If they were so confident about their returns from added staff they could collect the same returns on the shared performance fee. Hope Jim can work something out as WCI has gotten them a LOT of business and I bet we are easily over 10M as a group.

[deanyar]

To me, it is one thing to raise the fees on NEW investors - they should know what the parameters of what they are investing in.
But to also raise fees on current/previously committed investors does bother me.

[Hank]

To me, it is one thing to raise the fees on NEW investors - they should know what the parameters of what they are investing in.
But to also raise fees on current/previously committed investors does bother me.

Higher fees after you go round trip and decide whether to reinvest is one thing. Higher fees while your money currently is tied up is quite another thing.

What was it that Darth Vader said to Lando Calrissian?

[MaxPower]

Higher fees after you go round trip and decide whether to reinvest is one thing. Higher fees while your money currently is tied up is quite another thing.

What was it that Darth Vader said to Lando Calrissian?

I believe it was “I am altering the deal. Pray I don’t alter it any further.”

[The White Coat Investor]

Higher fees after you go round trip and decide whether to reinvest is one thing. Higher fees while your money currently is tied up is quite another thing.

What was it that Darth Vader said to Lando Calrissian?

It wouldn't surprise me if they allowed you liquidity you were not otherwise entitled to if you made a stink about this change. Not that their liquidity has ever been particularly low as these things go. I think their longest lock-up with any fund is a year and some are as little as 90 days. So essentially, if you don't like it, you can walk very soon if not immediately and invest elsewhere.