- March 1, 2014: Vol. 26, Number 3

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It is a fee for all: Rethinking incentives and alignment of interests

by Roy Schneiderman

Once upon a time, there was hope that the real estate meltdown that followed the global financial crisis might prompt an opportunity to develop new and creative fee structures that would better align the interests of investors and investment managers.

But while there has been some tinkering, the market has not seen the development of a breakthrough in fee structures leading to better alignment. What follows are some partially baked ideas — some already kicking around but not widely accepted, and others fairly novel to stimulate some thought and discussion.

Asset management fees

Asset management fees typically are paid as a percentage of committed capital or a percentage of invested capital during the investment period. From an investor’s perspective, payment on invested capital is often preferred for at least two reasons: First, all else being equal, fees will be lower. Second, because managers are paid to manage invested capital, why should

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