Canada

Emerging fund managers: Build a structure

INSIGHT ARTICLE  | 

As the real estate market is poised to welcome new investors, RSM has put together a guide for emerging fund managers. Learn more about the steps, strategies, structures and compliance to consider when launching a new fund in our emerging real estate fund series.

KEY TAKEAWAYS

  • There are two components to building a fund structure—legal entities and fee arrangements.
  • Funds can have a flexible structure, but it could cost them

Emerging funds have two main considerations regarding structure—determining their legal entities and establishing their fee arrangements, including fund manager compensation.

When deciding on entities, consider: What type of investors is the fund targeting? Is it an open-end or closed-end fund? What is the planned hold period for certain assets? In what sectors is the fund looking to invest?

“There are structures in place that can provide more flexibility if a fund hasn't necessarily decided what path it's going down,” Scott Helberg, a senior real estate analyst for RSM US LLP. “But it's also important to recognize there's a potential increased cost in getting that flexibility, whether through compliance fees or tax leakage, which means less cash flow to your investors.”

Two means for fund manager compensation exist: One is the management fee, typically a percentage of capital committed or invested that tends to run about 1.5 per cent, depending on negotiations with investors. The second is carried interest received on the back end of the fund’s life, as assets are sold.

This article was originally published in partnership with Bisnow.

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