To succeed in today's challenging market, fund managers will need to pay all the more attention to AREF's golden rules as Rachel McIsaac, CEO of the Association of Real Estate Funds, reports
The lifeblood of the City has always been innovation, and the doubling of AREF's membership in the last three years, from 29 to 65 members, reflects the large number of new UK property fund launches. Even in today's challenging market there are several large new funds planned for launch in 2008.
Several other institutions are set to follow, evidence enough that there is life in the market in 2008. It's not only the large players entering the market - the last few years have seen the rise of several smaller boutique fund managers emerging as serious contenders for institutional money, running successful funds in an industry previously dominated by the fund management arms of international banks. Innovation is not only important at the fund level but, as this article explains, is also a key skill for asset managers at the property level in creating value for investors in today's market.
So how easy is it to set up a new UK unlisted property fund? What are investors looking for? How can fund managers sell a credible opportunity in today's market and prove they have the track record and skills not only to attract new money into their fund, but also to outperform their competitors in a challenging economic climate? Can innovation make all the difference?
I receive many enquiries about setting up new property funds. AREF, whose members manage over £37bn (NAV) of UK real estate in 65 member funds, welcomes such calls. Using AREF's Code of Practice, which is endorsed by the NAPF, as a framework, new fund managers can set up approved governance procedures, reporting structures and accounting standards that institutional investors expect as a minimum. The association also offers networking opportunities and workshops so new entrants can learn from more established fund managers.
However, it is indisputable that the financial and real estate landscapes have changed. Both fund managers considering a new fund launch, and those marketing existing funds to investors, need to bear the following in mind in 2008:
Good governance brings investor confidence: Fund managers need to demonstrate to investors that even in difficult market conditions their procedures are robust and accountable. All AREF members are required to externally value their property portfolios quarterly, be fully transparent on management, performance fees and insurance rebates and produce annual reports. Best practice is also participation in the AREF/HSBC sponsored UK IPD Pooled Property Fund Indices, which at the end of the year will show investors exactly how a new fund has performed compared with its peer group and competitors.