Managers of non-listed real estate funds are likely to feel increased pressure to reduce management fees, according to a recent survey by Inrev.
The European association for investors in non-listed real estate funds says the survey shows investors plan to put further pressure on fees to minimize the future overall management cost.
Those surveyed share a common view that there is more pressure from investors to reduce management fees than to attack performance fees. Yet both fee types are under scrutiny.
Average management fees, based on net asset value, for these types of funds are 0.37%. Yet levels vary with fund style and size.
The highest management fees, totaling 0.86%, are attributed to closed-ended funds.
Funds of funds with equity holdings of between €500 million and €1 billion have an average fee of 0.34%. Whereas those funds of funds with equity holdings of less than €500 million have an average fee of 0.43%, indicating reductions on the basis of economies of scale.
Inrev says around 60% of the funds surveyed reported paying performance fees, mainly on higher risk funds.
“Investors seem comfortable with these fees, so long as funds perform well,” Inrev says. “However, there is a growing emphasis on demonstrating that performance is based on realised returns as opposed to valuation-based capital gains.”
Lonneke Löwik, the director of research and market information, says management fees are a “clear target” but more attention is given to performance fee structures.
Inrev covered 49 funds from its database, with investments targeting mainly Europe and Asia, and two funds not currently listed in the database.
©2011 funds europe