GLOBAL - Fund managers in the real estate investment market will face increasing calls for the transparency, standardisation and ‘beta-matching' lower fees which investors now expect in other asset classes, speakers at the INREV annual conference have suggested.
During a panel session looking at how the credit crunch has affected asset allocation, all four panellists suggested the real estate investment market as a whole is perhaps the last market to catch up with the "professionalisation" all other asset classes and introduce greater levels of transparency and standardisation around their fee structures and reporting.
More specifically Johan van der Ende, acting chief investment officer of PGGM, the asset management and administration of PSZW, and chairman of the European association for investors in unlisted real estate (INREV), told fund managers in the audience they face increasing pressure to ‘standardise' fee structures and models because investors are having to deal with so many options but are not necessarily seeing the financial gains.
"As an institutional investor, I can do the diversification myself, you don't need funds to do that for me. I can do it on the listed market, buying the equity, or I can do it on the unlisted market. But if I buy stocks and have to give away 25% through a call option, does it sound like an interesting idea?
"That is how compensation schemes work, with a 20% promote. But it will be increasingly difficult to show that and deliver an income. So the hope is we can create further transparency in this market. I'm not sure where it is going in terms of management fees, but I do not think it is going up.
"There are more than 80 different types of fee models on the fees. That does not help. That creates tension between the investor and the fund manager. Do you really need 83 different types of fee situations in funds?" said van der Ende.
The evidence of over 80 different fee structures was found in research presented to delegates of INREV's investor-only conference in Istanbul - held prior to the main conference - but appears to resonate the opinions of companies attempting to work in the fund of funds space.
Bernhard Berg, chief executive of the insurer AMB Generali Immobilien GmbH said his firm struggles to manage the fee models in its handling of indirect fund business when dealing with so many fund managers and argued "we need stable income streams, so we need a fee model to fit that".
"It is very much for us a question of standardisation. In the past we had to talk to them about reporting, now we only want reporting done to INREV standardisation. Handling such a lot of fee models, as FoF managers, is not easy," said Berg.
Some of these arguments were made in part to encourage fund managers to adopt INREV standardisation for returns reporting, though officials acknowledge they are still guideliness at this stage and further work is needed to help explain what those standards are and how they should be applied to real estate investments.
Indeed, a later panel session rounding up the conference found, when asked to vote, almost 94% of delegates believe members of INREV should move towards the adoption of INREV guidelines on reporting, though a breakdown of data found fund managers were less enthusiastic about such development.
Much of the argument made by panellists was in favour of adopting improved governance and "professionalisation" of the real estate sector, although there was some disagreement as to how far standardisation should go.
Marc Mogull, founder and managing partner, Benson Elliot Capital Management, which works extensively with pension fund investors, said he found it "disconcerting" to discover fund management firms which themselves eventually become listed entities tend to see their "fee models change fundamentally"
That said, he argued against widespread standardisation of reporting and other elements of real estate governance to a specific requirement, and instead suggested it should be part of a firm's overall management.
"People have got to stop thinking transparency is a substitute for structures at the outset," said Mogull. "And this is not just about real estate, it is for all the alternative asset classes.
