US investors want ‘skin in the game’

European fund managers keen to attract US investors must offer transparency and alignment, Derek Williams, head of private real estate at Russell Investments told the annual IPD conference held in Frankfurt last week.

‘US investors are definitely looking at Europe, particularly distressed opportunities. There is not a wall of capital but there is a significant amount of interest for distressed and opportunistic investments. If you can get the alignment right, US investors can form a deep and loyal client base that can be nurtured.’ The US is the biggest economy in the world and home to some ‘really innovative’ sponsors among the pension funds, he added. ‘But it’s really important to have alignment of interest.’

While reporting procedures in the real estate industry have improved over the past three to four years since the outbreak of the global financial crisis, fund managers must also provide verbal transparency, he advised. ‘Sometimes fund managers provide a narrow perspective when they give an explanation for something, but that catches up with you sooner or later. For investors it generally comes down to certain individuals and platforms, but full disclosure is everything.’

Williams also signalled a shift from fund management fees based on gross asset value to net asset value and said that performance fees were also welcome as a form of alignment. But performance fees should be capped and fund managers would do well to put ‘skin in the game’, he advised. ‘There’s no substitute for a team putting personal equity into a fund which needs to be right-sized to the individual fund and sponsor.’