Real estate private funds provide one of the best governance structures because investors are partners in a fund where the managing partner (general partner) is incentivized to manage the fund to achieve maximum performance. The compensation of the managing partner is tied to the return performance of the fund; therefore, if the managing partner does not manage the fund well, performance-based fees will not be paid.

Decision-making is generally handled by the Managing Partner. At investment levels of 25% or higher, private net worth and institutional investors can sit on the Governance Committee and Investment Committee allowing them to participate in operational decisions, if the investment partner chooses to do so.

Limited Partnership Governance

  • The appeal of the limited partnership model is that the General Partner of the fund is also an investor.
  • The General Partner’s interests are aligned with the investors (the Limited Partners).
  • The General Partner, as managerof the LP, is an “activist” investor.
  • The General Partner is rewarded for seeking to continually unlock value via active control of strategy and execution.
  • The need for transparency is recognized by the General Partner and implemented through quarterly reporting and annual financial statements.
  • The General Partner’s compensation is tied to investment performance; therefore, the General Partner has a strong motivation to create value.
  • These motivations allow the General Partner to act independently with limited oversight.