Chapter 2
Empty Folders
Maggie had the conference room by seven. When Andy came in through the back door at 7:15 the downstairs lights were already on, and through the glass he could see her working her way down the long table with a stack of folders in the crook of one arm, setting them out one at a time and squaring each one to the edge of the wood.
He went in with his coffee and stood at the end of the table while she finished the row.
The folders ran the length of the table in two lines. Each one carried a printed label in the same plain type: Governance, Org Chart, Compliance Manual, Code of Ethics, Conflicts of Interest, Allocation, Business Continuity, Service Providers, IC Minutes, Track Record, Side Letters, Fund II Waterfall, and on down toward the far end, where the labels turned into things Andy had mostly seen in other firms’ offering documents. Some of the folders were fat. Side Letters bulged at the spine. Track Record held a thick stack of printouts with yellow flags along the edge, and Service Providers was so full of old contracts that Maggie had put a rubber band around it. About half of them lay perfectly flat on the wood.
“It’s an autopsy,” Maggie said, without looking up. “I wanted to see the whole body at once.”
Beside the folders lay the longer list she had promised on Monday, printed and stapled. Every line of Travis Oyler’s request ran down the left side. The middle column said where the answer lived, if it lived anywhere, and the right-hand column said who owned it.
“Thirty-five open items,” she said. “Fifteen of these have no owner.”
Andy read down the right-hand column. Most lines had a name, and the same few names kept coming back, his own among them. Then there were the lines with nothing written beside them at all.
“The compliance manual is from 2018,” Maggie said. “The conflicts policy is three paragraphs. There is no written cybersecurity plan.” There was a gap in the second row of folders, and she tapped the bare wood where one should have been. “We’ve had four phishing attempts and two check scams get close. One of the checks made it all the way to the bank before somebody there called Tom.”
She picked up the folder marked Allocation and opened it toward him so he could see the inside.
“And the allocation policy is ‘Andy decides.’”
He looked at the empty folder. Every flat folder on the table was something she had asked him for at least once. Some of them she had raised every quarter, at the end of a meeting about something else, in the same even voice, and every time something with a closing date on it had gone ahead.
“Beth Ann says we build the front,” he said.
“We can build a front that looks institutional by the fifteenth.” Maggie closed the folder and set it back in its place in the row. “What I can’t do is compress three years into eighteen days.”
She gathered the fat folders into her arms, the rubber-banded one on top, and left the flat ones where they lay.
“I’m leaving these here,” she said at the door. “Somebody should have to look at them.”
Andy stayed at the table after she had gone. Through the window he could see Tom’s car and his own in the back lot, and past them the hills catching the first of the sun. He picked up the folder marked Business Continuity, opened it, held it open for a while, and set it back with the others.
Upstairs he left his computer off and opened the bottom drawer of his desk.
It was where he had put it. In the spring Anika Reeves, the firm’s general counsel, had come into his office one afternoon with a printed copy of ILPA’s model due diligence questionnaire, the one many institutional investors start from, and set it on his desk. She had been through it section by section. Down the margins, in pencil, she had kept her count the way she kept every count, in small tally marks. One column was for questions the firm could answer with a document that already existed. A second was for questions it could answer if somebody sat down and wrote something. The third column had no heading.
He remembered thanking her. He remembered that a closing in Nashville had been set for that Friday, and that he had put the questionnaire in the drawer so it would not get lost under the closing binder. It had not gotten lost. It was right there under a Fund III offering book and a box of pens, and when he turned the pages, the third column was the longest in almost every section.
He carried it to Anika’s office. She was reading something with her glasses pushed up into her hair and a pencil behind her ear, and she looked at what he was holding before she looked at him.
“I wondered where that went,” she said.
“My drawer.”
“I know.” She held out her hand, and he gave it to her. She turned to the section on conflicts and allocation and ran the pencil down her own marks without reading the questions, the way a person runs a finger down a list they wrote. “I can write the allocation policy in a night,” she said. “I can’t write it until you tell me what you actually do.”
“When?”
“Not this week. The cyber plan and the manual amendments come first, and the compliance manager and I are on them through the weekend. Give me an afternoon the Monday before the room opens. The twelfth.”
“The twelfth,” Andy said.
She opened her calendar and put him in it while he stood there.
Scott came back from Cabo on Thursday with a sunburn across the bridge of his nose and a phone he kept checking in the hallway, and spent most of the afternoon in Maggie’s office. On Friday morning Maggie came down the floor, took the chair across from Andy’s desk, and laid a row of pages side by side in front of him.
She had sorted the list again. Five of the pages had a name at the top: Andy, Scott, Tom, Beth Ann, Wyatt. The last had no name.
“Everything on these five has an owner,” she said.
She went through the pages one at a time. Tom’s was short and all one subject, the Fund II waterfall, which version was right and why. Beth Ann’s held the side letters, and under them a line in Maggie’s handwriting: LP preferences. Beth Ann. Wyatt’s was the pipeline: every deal that had come in since he joined, and the screen he ran on each one before it reached Andy. The tracker held the status of each. It did not hold how he had decided.
Scott’s page covered the asset side: the loan terms and reserve balances, every capex budget and why it had moved, and which manager to call about what.
“Scott says he can put his hand on all of it,” Maggie said. “He can. He was in Cabo until yesterday.”
Andy’s page was the longest. Why the firm bought what it bought and passed on what it passed on. Which fund took a deal when two of them could. What the rent-growth assumptions in the Fund II memos had meant at the time. Who had approved each co-invest allocation, and on what basis.
He read his page twice, and then he moved it a little to one side.
“And the last one,” he said.
Maggie laid the last page in the middle. “One of Travis’s lines asks for K-1 delivery dates and any corrections. Here’s one that’s open this week.” She put her finger on a line near the top. “A family in one of the old syndications got a K-1 in September that doesn’t match their capital account statement. Their accountant needs a corrected one before their extension runs out. The accountant called Beth Ann. Beth Ann asked Tom. Tom is waiting on the outside tax preparer, and the tax preparer is waiting on one number from the management company at the property.” She lifted the finger. “Everybody’s done their part. Nobody has the whole thing.”
The rest of the page was the same kind of thing. The cybersecurity plan. Business continuity. An org chart with reporting lines on it, which the firm had never drawn because everyone knew who reported to whom. Oversight of the fund administrator. And at the bottom, the longest item on the list: the track record, every deal since the syndications brought up to the end of June, each number tied to an audited statement.
“Why does nobody own that one?” Andy said.
“Because everybody has a piece of it.”
“Give it to Beth Ann and Tom.”
“That’s what I was going to say.” Maggie wrote their names beside it, Beth Ann’s first. Then she gathered the pages. “Monday I want everybody’s hours. Every working hour, two weeks, everybody.”
“Mine too?”
“Yours first,” she said, and took them with her, and left his door open.
On Monday at a quarter to nine Maggie stood at the top of the stairs and explained the sheet to the floor.
Every working hour for two weeks, everybody, what you did in it. Then a mark in one of two columns. The first column was for work that needed the person doing it. The second she called assembly: finding something, copying it, rekeying it, reformatting it, reconciling two versions of it, chasing somebody for it.
“If you’re not sure which column,” she said, “ask whether you’d have had to do it at all if the thing had been where it belonged.”
Wyatt, over by the front window, raised a hand without looking up from his screen. “What about the hour I spend working out what Andy wants?”
A few people laughed. Maggie did not.
“Assembly,” she said.
Andy heard it through the glass and kept his face still.
He tried to keep his own sheet honestly. At ten on Tuesday Scott came in to ask what Andy had agreed with a property manager in Raleigh when the firm bought the property, because the manager remembered it one way and Scott remembered it another. At eleven Beth Ann needed to know exactly what he had told a Fund III family over dinner in June about the next fund. Andy answered both. Then he sat with the pen over the sheet and could not decide where to put the marks, so he walked the sheet down to Maggie’s office.
“If you were telling somebody something that should have been written down,” she said, “it’s assembly. For both of you.”
He went back and marked both in the second column, and then he went back over the day and found more.
On Thursday, with the first of the September reports in from the managers, Maggie pulled a chair up beside Esther’s desk in the back corner, set her phone face up with the stopwatch running, and timed each step of the quarterly package as Esther reached it, that day and through the days after. She wrote each step on a pad as it happened. The export from each property manager’s system. The reformatting in Excel, so the columns lined up with the firm’s. The check against the underwriting model. The narrative in Word. The deck. She restarted the stopwatch at every step, and the narrative was the shortest one on the pad.
By the end of the first week the track record had moved onto Tom’s desk. Beth Ann sat beside him in the late afternoons with the deck the firm had been showing investors for years, and Tom kept the audited statements for each fund and the administrator’s reports in a stack at his elbow. Every deal got the same treatment. Beth Ann read a number off the deck, Tom found it in the statements, and when the two did not match, Tom wrote down why. Most of the time the why was a date: a distribution counted in one quarter in the deck and the next quarter in the statements, or a fee taken before a refinance in one place and after it in the other. Now and then the why was something neither of them could remember, and one of them went up the floor to ask Andy, and both of them marked the walk in the second column.
On Monday the twelfth Anika came up at one o’clock with the questionnaire and a pencil and sat at the round table in the corner of his office.
“When a deal could go to Fund III or Fund IV,” she said, “what decides it?”
“Fund III is nearly done investing. What it has left is spoken for, mostly reserves and the last renovations. Fund IV is in its investment period. If a deal fits Fund IV’s mandate, it goes to Fund IV.”
“And when it fits both?”
“It hasn’t come up yet.”
“It will.” She made a note. “Co-invest?”
“The families who’ve asked, in the order they asked, if the deal’s big enough to need it.”
“Who keeps the order?”
“Beth Ann. And me.”
“Written down anywhere?”
“We’ve always done it this way,” Andy said, and heard himself say it.
Anika made a small tally mark in the margin and moved on to the next question. She stayed until after four. She asked about conflicts between the funds and the syndications, about who could approve a co-invest allocation when he was traveling, about what happened when a Fund III investor and a Fund IV investor both wanted the same deal. Some of the questions he answered quickly. A few he had to think about, and one he could not answer at all, and she wrote that one down too.
The policy was in his inbox when he got in on Tuesday, dated the twelfth. Deals went first to the fund in its investment period whose mandate fit. Anything that could go two ways went to Anika as chief compliance officer before it went anywhere. Co-invest followed a written order that Beth Ann would keep and Anika would check. Every allocation went into a log with the reason beside it. It described what Andy did, more carefully than he had ever done it.
He signed it at 7:20 and sent it back, and before he had finished his coffee Anika had moved it into the folder marked Allocation.
On Tuesday night Andy left late. At 8:15 he came out of his office and started down the floor toward the stairs, and most of the room was dark except for Nadia Farooq’s desk in the middle of the floor. Only her left screen was lit.
She had two spreadsheets and a Word document open on it. Her hours sheet lay beside the keyboard, and Andy could see from where he stood that she had already filled in the evening. Six o’clock, seven o’clock and eight o’clock all had their marks in the second column.
He stopped beside her desk. “What are you on?”
She looked up. “The Fund II quarterly. The waterfall slide is the worst of it.” She pointed at the screen. “There are a few versions of it in the drive, and more than one has last quarter’s distribution in it. I can’t tell which one Tom signed off on. So I’m rebuilding it. Again.”
“How long have you been on it tonight?”
“Since six.”
Andy looked at the screen. Nadia had come from acquisitions at a large institutional manager in New York before business school, and he had recruited her hard.
“What was this like at your old firm?”
She thought about it. “There, the quarterly never ended up on the deal team the way it does here. Something ran on Sunday night, and on Monday the property numbers were sitting in my model in the format I needed. Nobody rekeyed anything.” She looked back at her screen. “I never thought about where it came from until I didn’t have it. When I got here I figured every smaller firm did it this way.” She stopped and corrected herself. “I mean, I figured it was just what being smaller cost.”
Andy nodded and let her get back to it. He took the stairs down and went out the back door into the lot, where the air had a little cool in it.
Beth Ann sent the link to Travis Oyler’s office at 4:52 on Thursday afternoon, the fifteenth, copying Andy and Maggie.
Andy opened it at his desk and went through it from the top, as an outsider would. There was an index, and the folders were numbered, and every one of them had something in it. The compliance manual was the 2018 text under a new cover, with a page of amendments at the front signed by Anika. The cybersecurity plan was new, written in the first week by the compliance manager and the firm’s outside IT vendor, and signed. The allocation policy was there, dated the twelfth. The org chart had reporting lines on it for the first time, and a great many of them ran to the box at the top. The track record ran through the end of June, deal by deal, with Tom’s initials in the corner of every page where he had tied a number to an audited statement.
From the index, it looked like the data room of a firm that had always had one.
He clicked into the IC memos. They went back to Fund I, and each one was in the format of whoever had written it. Some had a section on what could go wrong and some did not. Some put the rent comps in a table and some put them in a paragraph, and one of them had no comps at all, only a sentence saying the broker’s were reasonable. Andy recognized that sentence. He had written it.
He closed the laptop and went downstairs. The conference table was bare. The flat folders were gone, and someone had wiped down the wood. Beth Ann sat alone at the far end with her shoes off under the table and her phone face down beside her.
“It’s open,” she said.
“I saw.”
She nodded. After a minute she found her shoes with her feet, picked up her bag and went out the back door, and Andy heard her car start in the lot.
On Friday, a little after four, Maggie came to his door and asked him to come to her office. When he got there she closed the door behind him, which she did not do often, and sat down behind her desk with a stack of sheets and one typed page on top.
“Twenty-two people kept a sheet for two weeks,” she said. “You included.”
She laid the page in front of him and tapped the first line.
“Thirty-eight percent of the hours went to assembly.”
“Everybody’s hours?”
“Everybody’s.” She moved her finger down. “Payroll is about seven million, fully loaded. Thirty-eight percent of it is about two point seven million a year.” She came to the last line. “A little over eight people doing nothing but assembly.”
Andy looked at the page. “These were the two worst weeks we’ve had all year,” he said. “The data room was in them.”
“I know. So I checked.” Maggie drew another page from under the stack. “Over the weekend I rebuilt the last week of August for a few of us, from calendars and sent mail. No closing that week, nothing due to anybody. Thirty-five percent in a quiet week.”
“Then why use thirty-eight?”
“Two reasons. Nobody puts eight-fifteen at night on a calendar, so thirty-five is low by whatever the evenings come to. Nadia’s sheet has her here past ten on Tuesday, and none of that kind of hour is in August.” She held up a second finger. “And between now and the final close, we’ll have a lot more weeks like these two than like August.”
“OK,” Andy said.
She slid one more sheet across the desk. It was his own, in his own handwriting. Most of the second column was the same entry in different words, and each one ended in somebody else’s name.
“What do you want me to do with it?” he said.
“Nothing yet. I wanted you to have the number before somebody else gives you one.” She stood up. “Keep it.”
She opened her door.
At twenty to seven Andy was still at his desk with Maggie’s page in front of him. The floor had mostly emptied for the weekend. Wyatt’s screens were dark, and Tom’s coat was gone.
Nadia knocked on the glass with the edge of her notebook.
“Do you have a minute?”
“Sit.”
She sat, the notebook on her knee. “There’s something I’ve been meaning to ask since my first week.”
Andy waited.
“The IC memo template,” she said. “The one that says what sections every memo has to carry, what the downside case has to show, who signs off on the rent comps. Is there a reason we don’t have one, or did nobody ever build it?”
Andy thought of the folder of memos in the data room, each one in the format of whoever had written it, and the sentence about the broker’s comps.
“Nobody ever built it.”
“OK.” She jotted a line in the notebook. “If I drafted one, would you read it?”
“Yes.”
“Good.”
She went back to her desk. Through the glass he watched her push the keyboard aside, pull the notebook into the light of her one screen, and start writing by hand.