Illiquidity Risk in Non-Listed Funds: Evidence
from REIT Fund Exits and Redemption Suspensions
Jonathan A. Wiley
Published online: 21 April 2013

Abstract

Managerial incentives are skewed in non-listed funds under finite horizons.
Compensation structures are only indirectly related to shareholder wealth maximization
when share prices are unobservable. Liquidity options for investors are limited in the
absence of an exchange listing. Using a hand-collected database for public non-listed
REITs, an empirical sequence considers the impact of management compensation
contracts on equity fundraising and success in capital deployment. Evidence is provided
that high asset management fees and high acquisition fees diminish managerial success
at generating revenue from invested capital. Successful revenue flows are deterministic
factor in the level of distributions paid and the likelihood of achieving a fund exit.
Closing the gate on share redemption plans is synchronized with the slowdown in new
equity flows. Retail investors are insensitive to maligned compensation