Working Paper #469
Reining in Opportunity Fund Fees
Joanne Douvas
A cornerstone of the private equity fund philosophy is that general partners (GPs) compensation should reflect performance, and the interests of GPs and limited partners (LPs) should be aligned via the compensation arrangement. This paper examines real estate opportunity fund fee structures and the disconnect between compensation and investment performance that has resulted as markets have changed and returns have declined. The paper proposes fees that represent a continuum along the risk and return spectrum such that GPs are paid for performance relative to the returns they deliver.