REAL ESTATE – Risk management in the real estate sector is finally catching up with other asset classes, says ING Real Estate.
"At last, property is coming out of the dark ages. We start to see adequate risk controls in place," said Mark Bunney, director of ING Real Estate Investment Management (UK Funds) Ltd. He was speaking at the Fund Manager Selection conference in London last week.
He added: "Managers should be able to analyse where value is added or lost and should not be afraid to report it. We acknowledge that mistakes are made but we want to know."
As "property is a very imperfect market which needs a lot of input from the manager", Bunney stressed the importance of choosing the right manager carefully. He welcomed a trend towards improved remuneration. " We would like to see performance fees of some sort. But that does not necessarily mean that we encourage more risk-taking."
In the European market Bunney spots two major problems: One is the assessments of valuations and the other is liquidity.
"Whereas valuation in the UK is done monthly or quarterly, sadly in Europe most managers value only on an annual basis. In Germany we had examples of very errant valuations being carried out by the managers themselves rather than by an independent entity."
As for liquidity, Bunney quoted figures that in the UK market £312m of units were traded in the last quarter. This is not a lot of secondary trading of funds if compared to other asset classes but "for the property market it is a lot", he said. He warned, however, that premiums could fluctuate widely.
In Europe, on the other hand, the "market is still very opaque". Little data was available on liquidity. "When a fund comes to the end of its life in Europe, we have seen that investors are sometimes forced over until a majority agrees to liquidate. Although that is happening less often now", he said. Nevertheless, he cautioned investors to look for an exit route before investing in European funds.
ING Real Estate Investment Management (UK Funds) Ltd. is part of ING Real Estate which has over €50bn in assets under management.