- February 2012: Vol. 24 No. 2

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Feeasco: Are Real Estate Investment Management Fees Too High?

by Geoffrey Dohrmann

Investors increasingly seem focused on fees. And in some cases, concern is warranted. Is it really necessary to pay 200 basis points and 20 percent over an 8 to manage multibillion-dollar pools of capital that are then heavily leveraged to drive up risk and return, when the manager has relatively little real capital at risk on a proportionate basis as is often the case with private equity and venture capital type investments?

Downturns like the one we experienced in the early 1990s and late 2000s also can get investors looking at costs, and on a superficial basis, real estate fees do seem to be disproportionately large when you’re looking at total fees paid relative to total assets managed.

If you looked at the annual report of the California Public Employees’ Retirement System (CalPERS), for example, you’d see that of the total fees paid out to managers, a disproportionately large percentage of those fees are paid out to

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