Global RE fund cuts management fees to zero

One large institutional private equity real estate player has agreed to cut management fees on uncalled capital for its opportunistic vehicle to zero. It's not a solution for everyone though, a New York conference was told.

A global opportunistic fund has agreed to cut management fees on unfunded capital commitments to zero in an effort to help investors' liquidity issues.

The fund, which declined to be named, said in today's volatile real estate markets its dry powder might not be deployed for another 18 to 24 months. “We have told investors we will not charge you for that [decision],” said the fund sponsor.

The comments were made at the GRI conference in New York yesterday.

LPs pay an annual fee to general partners to manage private equity real estate funds. Fees can range from 1 percent to 3 percent, but are typically in the region of 1.5 percent.

Last October, pension fund managers told PERE fund terms, including fees and preferred terms, were beginning to change, with Eric Lang, director of real estate assets at the Texas Teachers' Retirement System, saying: “It’s early, but yes terms have changed.”

Real estate GPs attending the GRI conference though said smaller fund managers would be unable to compete against such drastic cuts in management fees, with one participant arguing: “Who's going to pay the wages, the office overheads, how will you source deals with no management fee?”

During the same conference, a poll of GPs and LPs revealed that delegates believed real estate prices in the US had fallen by an average of 33 percent from their peak to date. A handful of said prices had devalued by between 40 percent and 60 percent.

However, when it came to dry powder a majority of fund sponsors and investors believed there was anywhere between $10 billion and $300 billion of unfunded capital commitments sat on the sidelines ready to invest in property.

One senior real estate investment officer with an $80 billion US public pension said a study of commingled private equity real estate funds, conducted by The Townsend Group, indicated there was around $100 billion of dry powder available for deployment into the asset class.