Investor alignment could solve 'diversity' problems

GLOBAL - The common practice of having diverse investor bases in real estate funds poses significant challenges for pension funds' due diligence, delegates heard at IPE Real Estate's Investor Forum in Amsterdam last week.

Speaking at the IPE Real Estate Investor Forum in Amsterdam last week, Hermann Aukamp, managing director at German pension fund Nordrheinische Aerzteversorgung (NAEV), said investing alongside different investors in funds had been proved to represent "a big problem for pension funds".

As a result, pension funds are focusing much more on the alignment of interests between fellow investors when performing due diligence on real estate fund investments.

Aukamp said insurance companies, fund of funds managers, private investors and family offices "all behave differently in a crisis like this", and this is why NAEV prefers separate accounts.

He added that larger pension funds "will focus in the future very much on smaller funds and on funds which are very like club funds and will emphasis alignment of interest between investors."

However, Andrea Carpenter, research director at INREV, said this was a luxury only larger investors could enjoy.

"It is definitely an issue, but I think it is one for the larger pension funds."

When pressed how the need for closer alignment between investors could be resolved for smaller investors, Carpenter observed that most investors were already talking more and sharing their knowledge.

"When they are thinking about new products they are actually a lot better aligned and have done a lot more due diligence with each other," she said.

Stephen Ryan, senior investment consultant at Mercer, agreed with Carpenter, citing the increasing number of investors calling together what he termed "ad hoc clubs" to deal with specific fund issues.

These investor clubs, it was noted, were intended as temporary provisions and were likely to be disbanded once issues were dealt with.

Carpenter added: "I don't think they want to overly influence the fund [or] to do the work of the fund manager".