Fund investors and managers looking for opportunity—and success—in today’s environment should be mindful of these five tips.

The current private lending market has been arguably the most turbulent and unpredictable in recent memory. It’s anybody’s guess where the smooth water is.

The good news? Some old-school practices are shedding some solid income returns and attracting a whole group of quality investors in the fund space! This embraces the one thing that never changes: The interest in strong debt funds and the ethical structure that fund managers adhere to (keeping their investors safe—and paid) in this current real estate market.

The pressures on current fund managers are greater than ever, with constant yield volatility and interest rates in flux. And, because of the extra competition in the space, it is becoming increasingly difficult to distinguish the “wheat from the chaff” when it comes to quality investments. Here is a Top 5 list of some buzzworthy topics and practices for “in-the-trenches” fund investors and managers.

1. Investing in Non-Performing Assets

Is “one man’s trash another man’s treasure”? This is and always will be the $64,000 question. In the upcoming months, the “buzz” is that this market will again start to produce these assets for investment—and sometimes there are some diamonds in the rough.

Fortunes have been made and sometimes stalled in this space, so take a hard look at your appetite for this asset class. The strategy comes down to a few key elements that would seem fairly simple. This basic investment approach must be tailored with a keen ability to set realistic current values (both for geographic and individual assets) and to turn these assets around to gain the profit upon exit.

The risk associated with these property buys comes with unseen issues that aren’t detected by underwriters or arise from a false market understanding. Another factor can come down to a lack of understanding the “true” exit and what it will take do a clean deal dismount. Real rehab numbers from high-quality local contractors as well as knowing the specific market and its real heartbeat are also paramount to protecting the fund and its investors. Many times, fund managers look only at the ones and zeroes on a page and don’t consider the amount of work it will take to get to the exit without holding assets longer than they wish.

2. Fraud Is on the Rise

Fraud is always a hot button item and something to be alert for in the finance world.

The latest buzz in fraud is AI. Artificial intelligence comes in all shapes and sizes and with little to no learning curve for the criminal. As such, AI is becoming a major part of the modern scammer’s playbook.

Did you know that within three minutes, a fraudster can program an automated voice program to answer a phone call, state certain things (as a borrower), and even cold call outbound to lending and banking institutions? This can all be done Day One—with no training, no real computer knowledge, and no real human being. Scary stuff, to say the least.

AI can also create fraudulent documentation as well as change current documents to look authentic and legitimate. The documents presented via AI are nearly perfect, and without a special program to uncover digital changes and electronic criminal “fingerprints,” a fund manager would never know. Scammers can change bank statements, titles, and appraisals in seconds, and they can create voices and communications with human beings that don’t even exist. AI isn’t going away—keep learning everything you can about it.

3. Fund Diversification

“Too much of any one thing isn’t good for you,” as the old saying goes. It’s true of fund management too.

For many years, fund managers were known to be super niched (one loan type and one client type). With market turbulence as it is today, you need “several choice hats in the hat store” now. The buzzword here is to diversify, diversify, diversify!

That approach can be the cornerstone of a long-term successful fund operation. Investors are looking for a bit of depth, not just one asset to tie their entire investment to. A diversified portfolio will attract more educated and loyal investors, including opportunities in new geographic locations.

There are many growth and quality options available now. If you were to put all your eggs in just one basket and that basket were to fall down the stairs and break, then you are stalled—and so are your investors’ distributions.

It can be overwhelming to diversify (especially if you are not familiar with some asset classes), so take it slow but do investigate opportunities as they arise. It is completely OK to grow with a fund and also with a very bumpy market in parallel. Change is always a constant, so “growth with diversification” must be part of the business plan.

4. Strong Competition

We all know there will always be stiff competition in the investing space, especially in the real estate investing space. The new buzz to set your fund apart is to find a way in which it educates both its investors and its borrowers. A small number of fund managers are already doing this very well. It is paramount to not fund success but rather the quality reputation a fund carries for the long term. While this seems easy enough, many funds lack that special touch of constant bilateral education and growth.

Marketing alone will not put your fund ahead of the competition. You must do more now to legitimately have your marketing meet your audience where they are. Too many fund managers believe this involves 57 color-page pitch decks and YETI water bottle giveaways at the trade show booth. Investors are smart. They understand the need for honest education and want a true understanding of how you will help both sides of the equation grow, so honor that.

Borrowers, if trained well, will be return clients. By educating them, you are giving them two things: a better chance at success and loyalty (because, as a true partner, you have helped them achieve their goal). There is nothing better than a borrower you have been helping coming back and investing in the same fund that helped grow and achieve their goals.

5. Know Your Market Conditions

It cannot be stressed enough that markets are changing, and it is also true that all markets are not the same. A deal in Lansing, Michigan, is not the same as one in Dallas, Texas. Yes, both markets are going through expansion and contraction, but a 10% drop in value in a mid-Michigan SFR is not the same 10% value drop of an SFR in the fourth largest MSA in the U.S.

A guest on a business television show recently said that all markets are starting to cool. This statement could not be further from the truth. Your fund is not a one-market-fits-all fund—and your approach shouldn’t be either. It is also not your contemporary’s—and it shouldn’t be. Your fund was created with special thought and solid logic to address a current need. It was birthed from an educated business plan, and designed with your sole desire to be successful and deliver returns for the long term, given your team’s knowledge and experience.

Deviating from that approach creates problems. Investors are looking for more but walking away from what they perceive as detrimental. As such, investors are also looking for educated fund managers with real knowledge and real experience.