Earlier this week, Adam and I were recording an episode of the Wealth Independence Podcast about legacy planning – specifically, what happens to your investments if something happens to you.
But that conversation got me thinking about a different angle on legacy planning that’s rarely considered: what happens to your syndication investments if something happens to the sponsor?
Most investors I talk to can rattle off their sponsor’s track record, and maybe even their total AUM or where they went to college. But ask them who actually underwrote the deal they invested in? Who manages the property management relationships? Who’s the lead on asset management?
Blank stares.
The only person they can usually name is whoever sends the quarterly updates. And that’s often because that person IS the whole operation.
A Person vs. A System
A lot of deal sponsors out there are really just one talented dude with some support staff.
They’re a capable person who handles most everything: sourcing deals, raising capital, managing operations, investor relations, etc. The business depends entirely on that person’s involvement in most, if not all, of those processes.
They’re a sponsor (a person), not a sponsorship business (a system).
A sponsorship business, on the other hand, is an organization with defined roles, documented processes, and bench depth at every critical function. Functions that can operate independently of any single person.
Unfortunately, this person vs. system distinction is a form of key man risk that rarely shows up on a passive investor’s sponsor evaluation framework, even though it’s vitally important.
Why This Actually Matters
When you invest in a syndication, you’re betting on the sponsor’s ability to execute over five to ten years.
And if that sponsor is just one person? What happens when they’re unavailable, distracted by other deals, or overwhelmed by growth? The sophistication of the business plan won't matter. Their previous perfect track record won’t save today’s deal.
The deal only works if someone actively handles all the moving parts.
The Three-Month Test
A simple way to test this when evaluating sponsors is to ask: If the lead principal took a three-month sabbatical tomorrow, what would happen?
Would existing deals continue operating smoothly? Would new deals get done? Or would everything just...stop?
Ideally, the answer you get reveals depth (or at least skill crossover) in critical functions:
Capital markets and lender relationships
Property management oversight
Acquisitions and underwriting
Asset management
Investor relations
If there’s no redundancy in these areas, you’ve got key man risk.
Small Teams Can Still Be Real Businesses
To be clear, I’m not saying the sponsor needs to be a massive operation with 50 employees.
Small, focused teams can absolutely build real businesses. The most successful syndication operations I know tend to be fairly small. But they have specialized people with true depth in their domains, creating redundancy at those critical functions.
Team size isn’t the metric here. What matters is whether you’re investing with a person or a system.
Making It Practical
Add these to your sponsor evaluation checklist:
Ask about team structure
Ask who handles critical functions
Ask what happens when key people are unavailable
Listen for specifics, not generalities. Sponsors who’ve created real systems are usually proud to share what they’ve built. But if you get vague answers or dodge tactics? You’re probably looking at more of a person than a true system.
This doesn’t mean solo operators are inherently bad. But they do introduce hidden risk into a deal – so you want to understand and quantify this as much as possible. Then you can decide exactly how comfortable you are with it in that specific investment.
You’re not just investing in a deal. You’re investing in the people who will manage that deal for the next decade.
So don’t just plan for what happens if something happens to you. Make sure there’s a plan if something happens to them.