Data availability is indeed at the top of the list for many real estate investors and asset and property managers. The ability to access a range of data at speed is paramount, not only for the sake of reporting to investors, but to make strategic decisions about a property, portfolio or distribution. Likewise, the need for accurate and flexible reporting in a heavily regulated environment is essential.
The need for particular types of data isn’t markedly different now than it was in the past. Data is used in portfolio analysis and construction, and to fulfil regulatory obligations. It is the number of specific data elements and the speed at which data delivery is expected that have changed dramatically. In addition, today’s asset managers need access to secure online information that provides real insight and meets specific demands, as opposed to data dumps and basic file transfers.
Investor data demands
The demand for swift access to quality, wide-ranging data is being driven in large part by investors. With the evolution of fintech, apps and online portals, investors have come to expect data delivered quickly. The level of data freely accessed now by investors and managers was simply not available just a few years ago.
Institutional investors in particular want data as near to real-time as possible. Typically, they expect a pitch on the investment and subsequent information on returns to be provided electronically, sometimes on a daily basis. Other investors are less hands-on, and may for example want quarterly data documents sent to their homes.
These different investor demands and expectations regarding data delivery show that asset managers must be flexible and have sophisticated data management platforms and processes that can deliver quickly. This is especially important given the increasing number of single managed accounts and co-investors, whose reporting requirements can be exacting.
Technology costs and the arrival of artificial intelligence
Technology may be the great facilitator, but it comes with a cost. One rule of thumb in the fund administration space says that companies must put 20 percent or more of their investments into technology and process-automation capabilities.
These technology investments may be offset by a reduction in human resources costs, especially if data is made available promptly in a usable format that doesn’t require subsequent interpretation or manipulation by recipients.
Those in the fund administration industry are well aware of the potential cost and time savings artificial intelligence can bring. Consider, for example, the benefits of optical character recognition (OCR), a technology that electronically converts typed, handwritten or printed text into a form that a computer can process, edit, display online and store. While not perfect, there has been significant progress in OCR in recent years. It’s an example that speaks to the fact that, while AI holds promise in the real estate sector, it’s still in its infancy. Fund managers will probably have to wait years before wide-scale AI benefits can be realised.
Given these and other realities, those holding the purse strings in real estate must carefully consider how to spend their technology dollars. In particular, they must weigh short-term and ongoing costs against potential long-term benefits. In many cases, their decisions will be significantly affected by the size and nature of their respective businesses.
On the portfolio side, there’s a major incentive to invest in technology, given the high stakes and fierce competition. There’s less widespread pressure to invest in technology on the fund-administration side, particularly in the case of boutique firms, where the volume and breadth of investments are relatively low.
So far, we’ve only touched on fund regulatory compliance, but it’s an unpleasant reality all administrators must face. There are a myriad of obligations real estate fund managers must fulfil, from the US’s anti-money laundering laws to the EU’s Alternative Investment Fund Manager’s directive, to take two examples from a massive pool.
These regulatory requirements are evolving in each jurisdiction, and in general are becoming more complex and demanding, especially in terms of reporting. Indeed, in one Vistra survey of real estate fund professionals, 74 percent of respondents indicated that regulatory change had the biggest effect on their businesses. These regulatory demands, coupled with investor demands, ensure that fund-administration technology will continue to progress and be an increasingly important part of the sector.
It’s worth noting that regulatory requirements such as those related to know-your-customer and anti-money laundering ramped up in the aftermath of the financial crisis. More than a decade on, the difference is that companies now must prove they are complying rather than just stating that they are.
In some jurisdictions, companies must now provide similar information on environmental, social and governance (ESG) factors. ESG-related regulations will almost certainly proliferate in the real estate sector, in part due to the building sector’s high share of global energy-related carbon dioxide emissions. The bottom line is that our current regulatory environment necessitates increasingly efficient and sophisticated reporting capabilities.
The way forward
Ultimately, asset managers and CFOs want funds to run smoothly, which as we’ve emphasised means meeting the demands of investors and regulators. Here are some important questions for fund administrators and others to ask when vetting a technology platform:
- Can I quickly see all my investments and legal entities in my real estate investment portfolio?
- Can I see related statutory requirements for my entities across all jurisdictions of operation, including outstanding and fulfilled deadlines?
- Is the platform flexible enough to quickly accommodate new or changed regulatory requirements and investor demands across all jurisdictions?
- Am I able to quickly respond to investors, regulators and auditors when they demand entity and fund information?
- Can I provide the information securely and in the required formats, rather than by email or regular mail?
- Can I securely store my documents over the fund lifecycle, from KYC to the liquidation and sale of an asset?
Given the challenges of today’s regulatory and investment landscape, most companies will consider not just using a third-party platform or platforms to meet the above needs, they’ll also want to consider outsourcing other aspects of fund administration, such as fund accounting. Outsourcing can relieve fund administrators of administrative burdens and free them to concentrate on fundraising, investing and other core activities. Outsourcing can also reduce the costs of infrastructure and employee training and turnover, which is particularly important in a tight global employment market.
The real estate sector will continue to face mounting price pressures and demands from regulators and investors. Effectively meeting these demands isn’t simply a matter of delivering more data. Fund administrators must have the technology and processes in place to deliver that data quickly, flexibly, securely and in line with all applicable regulations and investor expectations.
This is an updated version of a previously published article.
How can we help?
The contents of this article are intended for informational purposes only. The article should not be relied on as legal or other professional advice. Neither Vistra Group Holding S.A. nor any of its group companies, subsidiaries or affiliates accept responsibility for any loss occasioned by actions taken or refrained from as a result of reading or otherwise consuming this article. For details, read our Legal and Regulatory notice at: http://www.vistra.com/notices . Copyright © 2022 by Vistra Group Holdings SA. All Rights Reserved.
The Changing Face of Global Real Estate
11 Oct 2019
As we enter Q4 2019, it seems an appropriate time to take stock of some of the key trends and issues affecting the real estate sector and examine what has happened in the year so far, and what we can expect in 2020…
German Cross-border Tax Reporting Requirements: an Urgent Need for Action
07 Oct 2019