Fund Managers to Face Increased Oversight from Limited Partners
THURSDAY, 02 JUNE 2011
Commercial Real Estate Direct Staff Report
Real estate investment-fund managers should be braced for more oversight from their limited partner clients, including reviews of their management-fee structures.
That's according to fund managers at the U.S. Opportunity & Private Fund Investing forum sponsored by Information Management Network. The forum is taking place this week at the Sheraton New York Hotel & Towers in Manhattan.
Investment committees, comprised of funds' limited partners, have already begun to have a greater say in their funds' activities.
"In the old days, a general partner just made deals, but now investment committees have a bigger role in deals that are outside of a fund's box," said Gary E. Block, managing director with Meridian Group, a Bethesda, Md., fund manager and developer.
By box, he meant a fund's prescribed limits for such things as use of leverage and concentration of investment risks.
"We will see those committees have even more say in what happens in the future," added Bob Faith, chief executive of Greystar Real Estate Partners of Charleston, S.C.
Howard Fields, managing director with asset manager and fund-of-funds manager Capital Dynamics, theorized that limited partners may review management-fee structures, noting that those fees were originally designed to just cover expenses but have since "evolved into profit centers." The fees are based in part on the amount of assets being managed.
"If you want to remain in business long-term, you have to understand your responsibilities and the responsibilities your investors have," said Russell Appel, president of Praedium Group, a New York investment manager. He said limited partners' major concerns include access to information about their funds' investment activity.
Block also expects limited partners to become more active in making sure their fund managers are also invested in their funds.
However, Irv M. Lowenberg, treasurer of the city of Southfield, Mich., which is a limited partner in some funds, warned, "The more skin that an investment manager has in the game, the more that they may sense that they own the investment fund. And people tend to be more reckless with their own money."
|
