EUROPE - European real estate fund managers are "embracing outsourcing with a new enthusiasm" as four different pieces of legislation force them to rethink their operating models, according to a new report from Street Street.
A poll conducted by the service provider found 37% of European fund managers with established in-house functions were considering offloading those presenting the most cost and complexity.
The back and middle-office processes most likely to be outsourced include rent collection, holding vehicle accounting and administration, fund accounting and administration, investor registration and performance analytics.
The AIFMD, EMIR, Basel III and Solvency II will have potentially "significant implications" in terms of complexity and cost, according to the report.
Specifically, the AIFMD will from July 2013 affect not only real estate funds but other arrangements used in the real estate sector, including joint ventures and property investment companies.
The authors of State Street's report said: "Regulation to further encourage and enforce the segregation of duties in the investment value chain is likely to tighten further.
"This is likely to result in increased outsourcing to ensure sufficient segregation between and regulation of these roles."
The report also pointed to increasingly complex fund structures that will encourage fund managers to offload operational complexity to focus on their core investment skills.
Meanwhile, investor demands for greater flexibility and more rigorous reporting will up management costs.
The company pointed out that demands for more frequent updates on fund performance, and more detailed asset-level reporting, will increase as managing risk becomes a more significant factor in investors' calculations.
Moreover, data aggregation tools that could give investors better access to granular reporting are currently largely in third-party possession.
The report said: "Historically, investors may have struggled to access on aggregate to relevant detail from multiple fund managers and other sources to gain a complete picture."
However, State Street found that 71% of fund managers polled were still wary of outsourcing because of variable quality and service.
Its authors also pointed to a paucity of service providers in a still relatively immature sub-sector.
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