EUROPE - Real estate investment trade bodies have urged the European Securities and Markets Authority (ESMA) to apply remuneration regulations in a proportionate way and recognise that many real estate fund managers are part of non-bank financial groups already subject to potentially conflicting rules.

A number of organisations have responded to ESMA's consultation on regulating remuneration under the Alternative Investment Fund Managers (AIFM) Directive by showing support for its 'proportionality' approach, which would potentially allow for less onerous regulations for smaller alternative fund managers.

But some have also highlighted areas where the regulator's proposals could lead to an unlevel playing field.

INREV, the European association for the non-listed real estate funds industry, sought to draw attention to the diversity of real estate fund management houses, many of which are, for example, owned by insurance companies.

Matthias Thomas, chief executive at INREV, wrote to ESMA that "many AIFMs in the non-listed real estate industry are part of financial groups that are not banks".

The letter continued: "Some of these entities operate globally and have a dozen or more different sector-specific investment centres, all with a common supervisory board, for example."

INREV is concerned that requiring the supervisory boards of such groups to adhere to proposed remuneration guidelines could prove unworkable, especially where the boards are already subject to MiFID, UCITs or other regulations.

INREV's consultation response outlined possible solutions, including expanding ESMA's proportionality principle so that fund managers owned by non-bank groups could apply the remuneration principles through a single supervisory board at the group level rather than the AIFM level.

INREV said this would "ensure consistent application of remuneration policies throughout the group".

The UK's Investment Management Association (IMA) also put out a statement saying it had sought to remind ESMA that "asset managers are not banks and should not be treated as posing the same systemic risks".

The IMA's response to the consultation included a warning that ESMA's proposals could lead to a "patchwork of regulation".

It said: "Many IMA members have MiFiD investment managers, AIFMs and UCITS managers in their groups. It should be possible to ensure there is one firm-wide remuneration policy, not a fragmented patchwork of policies at various boards."

INREV's response also argued that AIFMD remuneration rules should not be extended to cover those providing outsourced services, such as property managers and leasing agents.

Melville Rodrigues, partner at law firm CMS, who was involved with the INREV submission, expressed concern about the scope of the AIFMD remuneration principles being extended to those providing outsourced services.

"Fund managers often delegate asset management services," he said.

"However, asset managers are not involved in regulated activities and must remain outside the scope of the remuneration principles - even though asset management services may have an indirect impact on the risk profile of the authorised investment fund."

A joint response to ESMA from the UK's Association of Real Estate Funds (AREF), British Property Federation (BPF) and the Investment Property Forum (IPF) stressed the importance of recognising the different structures of real estate fund managers in attempting to maintain a level playing field.

The response said: "Given the huge diversity of the fund management industry, the low level of risk posed by such businesses and the non-systemic importance of individual AIFMs, it is vital the remuneration requirements of the Directive can be applied in a proportionate way that recognises the unique characteristics of individual AIFMs."

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