For decades, institutional allocators have debated whether private market real estate justifies its fee structure relative to public real estate securities. The comparison typically begins with headline numbers: Private funds charging management fees of 1.5 percent to 2.0 percent, plus performance-based carried interest, versus public REIT mutual funds and ETFs charging 20 basis points to 60 basis points.
On the surface, the conclusion appears straightforward. Private real estate looks expensive. Public real estate looks efficient. But this conclusion rests on a faulty premise: that the fees being compared represent the same economic functions. They do not.
The problem is not that investors are naive about fees. It is that the comparison is almost always made at different layers o
