In an article published by FINalternatives on Nov. 11, 2015, Brian Farmer and Alina Grinblat discuss whether certain fees collected by alternative investment managers constitute conflicted compensation. U.S. Securities and Exchange Commission Chair Mary Jo White gained the attention of the private real estate fund industry in a recent speech where she explained that there is concern among the SEC staff about inadequate and potentially misleading disclosure to private real estate investors regarding related-company services being furnished to private real estate funds and their portfolio properties and, in particular, whether market rates are being charged. “In our experience, there is often no offset of these related-company fees against the management fee paid by the fund to the manager,” Farmer and Grinblat explain. “Contrast this practice to the typical full or partial offset of related company fees in the private equity fund industry.” They go on to describe the even more challenging transactional fees and their implications. “One thing is certain – there will be a continued level of regulatory interest in real estate fund managers whose related companies charge fees to the fund or its portfolio properties without an offset against the fund management fee,” Farmer and Grinblat conclude. You may access the full article here.
Kristen M. Chatterton