INVESTOR REQUIREMENT TRENDS FOR PRIVATE REAL ESTATE FUNDS
With an increasing need to maintain a competitive edge, private real estate fund managers are wise to take note of the expectations placed on them by investors.
By working to meet these expectations, managers help to make their funds more attractive and thus differentiate themselves in this highly competitive market.
Greg Myers, Managing Director, sheds light on how investors in private real estate funds have changed their expectations, particularly when it comes to communication and reporting.
Q: What’s the current state of the market in private real estate? Are investors still hungry?
A: Private real estate funds certainly continue to garner a significant inflow of institutional capital. As positive returns and market stability remain, I expect the market will continue to be attractive to investors. For now, investors certainly have an appetite for private real estate funds, but there’s observable capital concentration in the market where we’re seeing fewer funds raising more capital. This is driven, in large part, by investors choosing to allocate their capital to larger funds amid concerns over high valuations and the possibility of market uncertainty.
Not only are investors becoming more selective in the funds in which they choose to invest, their requirements and expectations of fund managers have also begun to shift.
Q: In which ways are investors’ requirements changing?
A: It goes without saying that fund managers should consider the varying return profiles, risk tolerances and resulting fund structures that investors seek when marketing their funds. But what’s equally important is the fund managers’ ability to cater to investors’ changing requirements. Now, reporting, transparency and data security have come to the forefront of investor concerns.
Investors are no longer demanding simple statements and financials with return metrics; they’re seeking robust data sets of not only their allocated income and expense-related items, but also broader datasets. They want information on underlying assets, analytics on asset-level performance and analyses on local area markets, comparable properties, and peer properties. Investors are hungry for data and transparency, and fund managers who cannot promise this will likely miss out.
Q: How can managers position their firms to face these new challenges?
A: It’s imperative that managers have access to the technologies necessary to help collect, store and report on all facets of their portfolios- not only the accounting information found in their financial statements and their partners’ capital statements. This can be done in many ways, such as deploying new technology solutions internally, outsourcing the tech aspects completely, or working with a service provider who is already equipped with the technology necessary to meet or exceed investor expectations.
While the task of positioning their firm to face these challenges may seem daunting, it’s certainly possible when the right systems, technology and service providers are in place. With certain infrastructure considerations, it’s possible to give investors exactly what they seek.
Q: What kinds of infrastructure considerations should be made?
A: Fund managers should either invest in technology or partner with a service provider who’s able to consolidate data from disparate data sets, including accounting info, property level data, as well as local and national demographics. This will inevitably place them in a position to make a build versus buy decision. They need to be able to evaluate exactly what kind of staffing model the implementation would require if done internally, and compare that to an outsourced provider who’s able to provide the same capacity.
When vetting either in-house technological solutions or an outsourced provider, they should also play very close attention to the solutions’ data availability and security. Is the investor portal easy to access and navigate? Is proprietary data and investor information appropriately safeguarded? Is the appropriate infrastructure in place to avoid cyber-attacks? And last but certainly not least, does the tool provide the robust reporting investors seek?
We’ve increasingly seen private real estate managers turn to us to provide them with the outsourced solutions to their problems. This frees up time for them to focus on their core business of deploying capital, rather than spending time setting up and staffing an in-house technology solution that may or may not fit their target investors’ expectations.
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