Fees for Private Placements?

[Andrew Schena]

I've been raising capital now for almost 5 years and placing private money into structured equity positions in our properties LLC's, which have all been flips. My question, however, revolves around a potential fee structure. Do you think charging fees is appropriate? What are your opinions on what an alternative asset class like these should charge for fees, if any? Full disclosure, we do make a majority of our money with our own equity position in the LLC's. I am searching for answers about collecting funds up front on acquisitions and management of the assets while under construction. Sometimes these properties run 6-9 months, if on time, and there are no paychecks in between, so we started discussing the issue.

In examining other alternative asset classes, such as hedge funds, venture capital structures, and some other alternative assets charge a 2/20 fee (2% of funds held and 20% profit earned, with some funds even higher on the profit end). But I also know that REIT's return 90% of profits, but have layered fees.

I've seen larger syndication deal memorandums charging acquisition, management and asset disposal fees.  If we were to charge fees, what is fair?  Also does a fee get deducted out of their return of initial equity, or out of profit, or both, depending on structure.  Maybe I've been listening to too much Bloomberg radio.  

Thank you for all your thoughts in advance!

Andrew Schena  

[Bryan Hancock]

I think charging fees is appropriate, but it really depends on how well you can pull investors.  Most funding platforms can raise equity for around 3% of the amount raised now so you probably need to be in that range to be competitive.