Last month, the Editorial Advisory Board for Institutional Real Estate Americas met in Southern California. Prior to these meetings, which are held twice a year, board members are invited to submit “Food for Thought,” which guide and shape the discussion among investors, consultants and investment managers. Many of the discussions at the board’s spring meeting centered on the relationship between LPs and GPs, and some of the “Food for Thought” topics centered on fees and compensation:
- Is there a move away from discretionary, closed-end funds to other vehicles? If so, is this move driven by a desire to reduce fees, or are there other issues involved?
- How are fee structures handled in sidecar vehicles? To whom should any fees collected on co-investments go — to the GP or to the fund?
- Why do some real estate funds continue to charge so many fees in addition to management fee and carry?
Standardization of fees has been a long-time project for the industry. Last week, industry associations NCREIF, PREA, INREV and ANREV, representing investors around the world, put out a report on their efforts in this area: “Setting the Right Path for Global Real Estate Standards: Fee and Expense Metrics — Phase I Results.” The goal of the paper is to improve transparency and the comparability of information reported by managers:
“The fees and expenses that are charged by the investment manager of a vehicle are an area that is attracting significant attention from investors and regulators. Practices vary by firm, strategy, product and region. As investment becomes more international, the problem is growing in importance, since terms and definitions differ from region to region.
It is therefore paramount for investors to understand the variations in these terms and definitions in the documentation for specific vehicles.”
To that end, the paper has collected detailed fees and costs used around the world, providing definitions as well as comparisons of the INREV Guidelines and NCREIF PREA Reporting Standards. It’s an important first step toward standardizing business practices.
The views, statements and opinions expressed in this article are those of the author and are not necessarily those of Institutional Real Estate, Inc.
Not a subscriber to IREI Insights blog? Sign up to receive alerts on new blog posts.
Loretta Clodfelter is editor of Institutional Real Estate Americas.
