Club Deals vs Funds vs Direct: Which Structure Fits Which Type of Investor?

“What are you actually trying to achieve?”

It’s the question I use to open almost every conversation with investors. And it often stops the discussion before it starts.

Most arrive thinking in terms of real estate investment structures – club deals vs funds, co-investments or direct ownership – long before they have defined their strategic intent. That sequencing is costly. The wrong structure can erode returns even when the asset is strong. The right one reinforces the investor’s goals with clarity, governance and discipline.

Why Strategy Must Drive Structure

Investors often encounter products before they develop a strategy. Sponsors present opportunities, peers share experiences and market cycles influence sentiment. This product-first exposure creates subtle bias and leads investors to choose a structure before understanding what it demands. Matching structure to strategy reverses that sequence. It ensures real estate investment structures support governance and risk management, align with internal processes and reinforce the capital deployment strategy. When clarity comes first, execution becomes smoother and outcomes more predictable.

Linking Investment Objectives to the Right Structure

Objectives shape everything. Income-focused investors benefit from funds or stabilized direct assets, which prioritize predictable cash flow and regulated oversight. Growth-focused investors often favor club deals or co-invests, where targeted value creation is possible. Diversification goals lean naturally toward funds, which spread exposure across markets and cycles. When conviction is high, direct ownership or focused clubs provide the concentration and influence required. Clear objectives narrow viable structures rapidly and improve investor strategy alignment.

Defining the Level of Decision Authority You Actually Want

Decision authority ranges from total control to full delegation. Direct ownership gives complete authority on strategy, timing and capital decisions. Club deals offer shared authority, often guided by the anchor investor’s framework. Co-investments allow influence at entry but limited say during execution. Funds rely on delegated authority, where investors oversee governance rather than individual assets. Knowing how much influence you want – not how much you think you should want – eliminates structures that won’t fit.

Assessing Operational Responsibility and Internal Capacity

Operational load differs from decision rights. Direct ownership demands full execution capacity: sourcing, underwriting, reporting and asset management. Many underestimate this workload. Club deals require selective involvement in key decisions, but operational tasks sit with the sponsor. Co-investments reduce tasks further; the lead sponsor handles the heavy lifting. Funds remove operational responsibility entirely. Realistic capacity assessment protects investors from operational strain and unplanned reliance on external advisors.

Understanding Which Risks You Can Shoulder and Which You Should Transfer

Risk management should follow capability. Direct ownership concentrates execution, governance and concentration risk. Club deals distribute risk but still require informed oversight. Co-invests transfer most operational and governance risk to the sponsor while keeping investors exposed to asset-level outcomes. Funds distribute risk across multiple assets and rely on regulated governance structures. INREV notes that governance and execution risk were the most underestimated categories among family offices in 2023 (INREV Investment Intentions Survey 2023). The right structure ensures you hold only the risks you are equipped to manage.

Matching Structure to Capital Deployment Requirements

Capital scale shapes structural viability. Direct ownership suits large single allocations. Club deals work for investors deploying significant capital but who prefer partners rather than sole ownership. Co-invests provide access to large deals without anchoring them. Funds accommodate smaller tickets while giving exposure to institutional-quality assets. Capital deployment strategy should reflect long-term allocation, not short-term liquidity. Clear scale expectations prevent investors from pursuing structures they cannot support.

Aligning Liquidity Needs With Structural Realities

Liquidity is structural, not aspirational. Direct assets and club deals rely on market conditions for exit. Co-investments follow the sponsor’s business plan with little flexibility. Closed-ended funds offer a defined redemption cycle aligned with the investment horizon. Open-ended funds provide periodic liquidity, but with gates and pricing adjustments to protect investors. Only funds offer planned liquidity corridors. Everything else depends on market timing and counterparties.

Ensuring Governance and Reporting Standards Fit Your Organization

Governance expectations vary widely. Direct ownership gives full responsibility for reporting, oversight and compliance. Club deals range from informal alignment to structured SPVs depending on the sponsor. Co-invests rely on the sponsor’s governance systems, which may exceed or fall short of institutional expectations. Funds offer the most reliable structure through regulated oversight, independent audits and reporting standards defined by frameworks such as ILPA and ESMA. For institutions and family offices with strict governance and risk management needs, this requirement often narrows the field quickly.

Choosing the Structure That Provides the Deal Access You Need

Deal access influences performance more than most investors realize. Direct ownership depends on internal sourcing capabilities. Club deals open doors to larger opportunities that single investors struggle to access alone. Co-investments offer access to high-conviction deals sourced by experienced sponsors. Funds provide diversified access across sectors and geographies. Investors should focus on access quality, not just volume, when comparing club deals vs funds and other structures.

Evaluating Fee Models and Incentive Alignment Against Your Strategy

Fee architecture influences alignment. Direct ownership has no external fees but requires internal capability. Club deals may involve arrangement fees and profit-sharing tied to project outcomes. Co-investments often offer fee discounts, creating alignment with the lead sponsor. Funds include management fees and carried interest but balance this through scale, regulated oversight and diversified performance. The right structure is the one where incentives reinforce long-term results, not short-term gains.

Addressing the Key Objection: “Real life isn’t this neat.”

Some argue that investors don’t fit clean categories and that a decision map simplifies complex realities. The framework isn’t designed to classify investors but to clarify trade-offs. Strategy evolves. Liquidity shifts. Risk appetite changes. Structure should follow strategy at that moment, not the other way around. A disciplined process allows investors to adapt without being led by market sentiment or product availability.

Practical Ways to Apply This Framework

Here are five steps that help investors turn this reasoning into clear, defensible decisions:

1. Build a one-page investment profile – Capture objectives, constraints and governance needs to anchor decisions.
2. Use a weighted scoring model – Compare structures using weighted criteria to make trade-offs explicit.
3. Stress-test each structure under adverse conditions – Assess how each model behaves under delays, cost increases or sponsor underperformance.
4. Map internal capabilities against structural demands – Align capacity with workload to avoid operational strain.
5. Conduct a decision rehearsal with your team – Simulate the process to expose blind spots before deploying capital.

Closing Summary – Returning to the Opening Question

We began with a simple question that often reveals a deeper challenge: investors think in products before understanding their aims. Real estate investment structures shape control, risk, governance and liquidity, and each one either reinforces or undermines the mission behind the capital. When structure follows strategy, decisions become clear, outcomes become consistent and capital behaves as intended.