Why structure matters more than returns
When evaluating investment funds — particularly in private markets — the temptation is to start with performance. IRR figures, multiples, and track records dominate marketing materials and investor conversations. Yet these metrics, while important, often obscure the structural dynamics that ultimately determine investor outcomes.
At Nomera Capital, we begin our analysis not with returns, but with structure. How is the fund organised? What are the incentive mechanisms? How are conflicts managed? What are the liquidity terms, and how do they interact with the fund's investment strategy?
The framework
Our evaluation framework is built around five core dimensions:
1. Incentive alignment
We examine how the fund manager's compensation is structured relative to investor outcomes. Key questions include: Is there meaningful co-investment? Are carried interest thresholds aligned with reasonable return expectations? Are there clawback provisions?
2. Liquidity structure
We assess the match between the fund's investment horizon and its liquidity provisions. Mismatches between illiquid underlying assets and generous redemption terms are a recurring source of structural risk in private markets.
3. Governance
Governance analysis focuses on the checks and balances available to investors. This includes the role of advisory committees, the transparency of reporting, the independence of the fund's service providers, and the clarity of the fund's investment mandate.
4. Risk exposure
Rather than relying solely on historical volatility or value-at-risk metrics, we examine the fund's actual risk exposures: concentration, leverage, currency, counterparty, and regulatory risk. We pay particular attention to risks that are difficult to diversify away.
5. Capital deployment dynamics
We study how capital is deployed over time, including pacing, vintage diversification, and the manager's approach to capital calls and distributions. The timing of capital deployment can significantly impact realised returns, particularly in private markets.
Application to Golden Visa funds
This framework is particularly relevant in the context of Portugal's Golden Visa programme, where investors must commit capital to eligible funds for a minimum period. In this context, structural analysis becomes even more critical, as the regulatory requirement limits the investor's ability to exit underperforming investments.
Conclusion
Performance data is backward-looking and often curated. Structure is observable, analysable, and more predictive of the investor experience. By focusing on structure first, investors can make more informed decisions and ask better questions of fund managers.