Column: Same destination, better directions

December 2008 marked a milestone for the non-listed real estate funds industry. The introduction of the INREV Guidelines established the code of conduct for professional standards as a crucial first step towards greater cohesion and consistency. It had always been our intention to review and update the guidelines after three years to ensure they remained a true reflection of market best practices.

by Lonneke Löwik, Director of Professional Standards at INREV

The economic turmoil of the past few years has increased the need to conduct that review. By common consensus the vast majority of the guidelines remain useful and valid. However, with an increasing focus on greater risk control, topics such as the INREV Total Expense Ratio and INREV Net Asset Value - which have always been the more challenging areas with relative low implementation - stand out as requiring attention. These subjects have continued to generate discussion ever since the guidelines were launched. And while debate is always constructive, the upcoming review provides an ideal opportunity to resolve any issues surrounding them to the broadest satisfaction of most participants within the industry. We also plan to examine a variety of topics that have, over time, become relevant to an evolving and fast-maturing industry. How, for example, should investors and fund mangers deal with fund exits? While the existing guidelines cover secondary markets, fund exits remain a subject in need of close scrutiny with a view to establishing the right level of information and transparency required by investors. Likewise, developing investor interest in so-called alternative investment vehicles needs to be factored into a re-issue of the guidelines. The growing appetite for club deals, JVs and debt funds has taken the industry into new areas that require considered review when it comes to plotting the accepted industry standards for investors and fund managers active in these areas. With AIFMD topping the list of new regulations to be introduced by national governments across Europe in 2013, there is an urgent need to ensure that the guidelines properly reflect any requirements that might be triggered as a result. Then there is the issue of international harmonisation. The INREV Guidelines were designed first and foremost against a European backdrop. But investors are not restricted to borders and increasingly the market is witnessing cross-border capital flows on a significant scale. This makes improved integration of professional standards an obvious goal. As part of the review, INREV will spend time comparing the guidelines with similar initiatives in other parts of the world - especially Real Estate Information Standards (REIS) in the US. Ultimately, we aim to work with REIS, NCREIF and PREA towards developing a ‘translation’ manual that will enable fund managers to better report to investors using compatible ‘local standards’. INREV is already committed to a timetable that is designed to bring the threads of the review together efficiently and to deliver a revised set of guidelines fast. The aim is to have the new guidelines in place by the beginning of 2014, but not to the exclusion of thorough and vigorous debate. The industry must have a solid foundation on which to base robust conclusions about the most fit-for-purpose standards by which it will be guided in the future. The process will include sounding out a range of INREV groups including relevant committees such as the Corporate Governance, Reporting, Due Diligence and Secondary Markets and Liquidity Committees. They will share their views on whether an update or expansion of their respective areas is needed. The operation will be coordinated by the newly created Guidelines Steering Group comprising representatives from the committees and the INREV board. A White Paper will be published in autumn 2013, followed by a series of roundtables, leading to the publication of the revised INREV Guidelines in Q1 2014. The outcome of this exercise will doubtless make for interesting reading and it will establish the next important marker for the industry as it moves from adolescence to maturity.

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