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QuickTip: Keep Management Fees Simple

A substantial number of offerings that we execute each year are for Investment Fund entities (real estate, hedge, energy, etc.) and these Fund entities have managers or management entities receiving various forms of fees and compensation.

Using real estate as an example – a Real Estate Investment Fund might have the following fees payable to management:

  • Fund Management Fee
  • Syndication Fee
  • Asset Acquisition Fee
  • Asset Disposition Fee
  • Property Management Fee
  • Carried Interest Compensation

While these are normal fees for a Real Estate Investment Fund Рan issuer should avoid instituting fee arrangements and compensation plans that are overly complex or complicated. We have seen third party prepared offerings with carried interest compensation tiered over eight different return on investment performance benchmarks which is, in our opinion, too complex for the average investor and not warranted.

Keeping fee structures simple and understandable for the average investor, and ensuring any related party fees such as property management are “market rate”, is an important part of engaging investors effectively and providing an appropriate confidence level for investing.

Author: admin

Thursday January 08, 2015

Category: QuickTips

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