I was chatting recently with a client about one of many alignment issues that haunt institutional real estate investors: How can you make sense of an arrangement where investors are evaluated on the basis of time-weighted returns, while incentive fees paid to managers are structured on an IRR basis?

It would seem the industry could take one of two fundamental approaches to resolve this conundrum: Either start evaluating investor performance using IRRs (or some other money-weighted metric), or create an incentive-fee scheme that rewards managers on a time-weighted basis.

Changing the way institutional real estate investors are evaluated would require changing the way chief investment officers, boards and industry organizations think. This likely would take a concerted effort by many industry participants over a considerable period of time. But any institutional real estate investor could start experimenting with alternative incentive-fee structures. It would only requir