EUROPE - A report published today by law firm Nabarro suggests investors willing to cornerstone new funds can effectively dictate their own terms - and in some cases may exercise a veto over subsequent investors.
The poll of 195 fund managers and investors found 62.2% of investors favour direct ownership, 62.1% favour joint ventures, and 43.2% favour club deals.
Only 13.5% would opt for funds - the least popular choice.
Nabarro partner Deborah Lloyd said the finding reflected dissatisfaction with the fund model and a desire for investor control over decision-making.
"Fund managers seem to underestimate investors' desire for participation," she said.
"It's not uncommon for a fund to close with a handful of investors in the hope of bringing in further equity.
"Most investors don't want to come in first closing, but if they're prepared to cornerstone, the incentives they'll get include reduced fees, a guaranteed seat on the advisory board and involvement in material decision-making."
She pointed out that fund managers were happy to give investors the right to co-invest because it represented "an easy give" - but said it was not necessarily important to investors themselves.
Where allocation size and available resources make investing in funds the most likely option for reluctant investors, core funds account for 43.3% of preferences, compared with 25.4% ungeared core, 24.6% value-added and 20% opportunistic.
Speaking at the launch of the report, Aviva Investors head of UK specialist funds Andrew
Appleyard said investors were now looking for "vanilla funds with certainty" - a trend likely to be exacerbated by forecast 1% growth over the next 5-10 years.
"If we went to investors and talked about returns of 15-20%, they'd laugh - they just wouldn't believe it," he said.
"You need a credible investment case, and I'm not sure investors want those kind of funds."
Amid predictably divergent emphases between fund managers and investors - such as the greater investor emphasis on fees and exit routes - came evidence of more substantial differences.
Successful future fund launches would require seed assets, according to almost 50% of both fund managers and investors.
However, fund managers were more likely to see follow-on funds as the second most important factor behind likely success (47.9%, compared with 39.6% of investors). Investors instead identified sector niche.
On geographic preference, investors identified Europe, the US and China as top destinations.
Yet the poll showed less investor interest in Asia, apart from China, than fund managers had realised.
While 43.1% of fund managers identified increased M&A activity as one of the three main trends in the real estate fund sector, only 30.9% of investors did.
Similarly, 27.2% of fund managers said they were seeing an increase in fund restructurings, compared with 16.8% of investors.