Institutional investment consulting firm Callan's first Real Assets Open-End Funds Fees and Terms Study found that the median management fee for core real estate equity funds is 96 basis points and that 55 of the 144 open-end real assets funds studied charge a performance fee.
The study, which analyzed real assets partnerships that represent fund offerings across real estate, infrastructure, farmland and timberland, found that the vast majority of performance fees operated under a "European waterfalls" structure. Under this framework, the general partner does not receive any of the retained interest layers before the limited partners receive their initial investment back plus their desired return.
Across all fund types, performance fees ranged from 0% to 20%, the study noted, with the median fee typically either 10% or 15%.
Of the 144 funds in the study, 77% were real estate funds — with the majority of those being equity funds — and 14% were infrastructure funds. By strategy type, the funds were roughly evenly split between core, core plus, debt and residential, with a handful of value-add and industrial funds.
In addition, the Callan study revealed that 63% of open-end real assets funds have a redemption queue that is pro rata based on net asset value, and 53% have redemption notice periods of 90 days.
"What stands out in the study is how many institutional open-end options exist today and how seemingly minor differences in fees and terms can impact investors," said author Aaron Quach, vice president in Callan's Real Assets Consulting group, in a news release issued in conjunction with the study. "With each year, Callan's fee study datasets broaden, which will give us greater ability to see trends in fees over time."
Callan noted the study is intended to help institutional investors better evaluate open-end real assets funds, serving as an industry benchmark when comparing a partnership's terms to its peers.
Callan added in the study there continues to be strong demand among investors for open-end real assets funds, with managers launching new open-end funds and competition increasing in most strategy types analyzed in the study.
But fees and terms can serve as a differentiator. As fees and terms may vary widely depending on the strategy, Callan noted, funds offering more investor-friendly fees and terms can be more competitive in searches.
Callan also said that while some open-end fund terms are relatively standardized across the universe, certain nuances, such as redemption notice periods and queue methodology, can have meaningful implications for investors when they need liquidity.
