We live in an era where insight (aka well-structured data) is king. From enabling organisations to analyse our online habits and bombard us with advertising, to so-called ‘big data’ which can reveal trends and patterns in human behaviour, a growing mass of data is helping inform all sorts of business decisions – and that includes in the real estate sector.
Data availability is at top of the list for many real estate asset managers, Limited Partners (LPs), property managers and CFOs. The ability to access a whole range of data at speed is paramount, not only for the sake of reporting to investors, but also 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 has been in the past – covering everything from portfolio analysis, portfolio construction and transaction data, to regulatory compliance. It is the number of specific data elements and speed at which data delivery is expected that have changed dramatically.
What asset managers are asking for is quick access to and navigation of insightful information online in a secure way – what they don’t want is data dumps and basic file transfers.
The reality is that speedier access to data can make decision-making easier. Being first to a deal isn’t a bad thing. And being able to provide data on a property, to dice and slice specific information so that you are able to take insightful and up-to-date information to a property deal, is key.
Investor data demands
This need for swift access to data is being driven, in large part, by the investors themselves. Institutional investors want data immediately. Typically, they expect a pitch on the investment and information on returns provided electronically, sometimes on a daily basis. Conversely, there are very wealthy individuals who are maybe more passive investors and want quarterly data documents sent to their home.
These disparate desires on how to receive and consume data demonstrate the need for flexibility in the way it is constructed and delivered.
Likewise, asset managers must have the capability for the quick provision of data to sophisticated investors when they demand it – especially the increasing number of single managed accounts and co-investors whose timing on reporting requirements might be more exacting. Again, it is about being flexible on delivery depending on the demands.
It’s not surprising that the evolution of fintech, apps and online portals and dashboards has led to investors increasingly wanting data at their fingertips, and this is creating a shift in the way the data is being delivered.
When considering the way we handle data at Vistra, secure, online information isn’t quite real-time at the moment, but we are progressing towards that objective.
The data we offer tends to be in PDF file or Microsoft Excel workbook from which investors can immediately draw the details they need. During 2020, we aim to have interactive dashboards available where managers and investors can drill down further to see every portfolio activity, including valuation updates, sector/region overviews and a breakdown of real estate asset types (office, hotel, retail, industrial and residential).
There is no doubt that the speed and accuracy of data reporting is something that will continue to evolve. If you go back just two years, the level of data freely accessed now by investors and managers was simply not available.
Tech costs and the arrival of AI
If technology is the great facilitator, it doesn’t come without a cost. In order to be successful in the fund administration space, it has been estimated that most companies need to put 20% or more of their investments into technology and process-automation capabilities.
However, these investments could be offset by a reduction in human resource costs, especially if data is made instantly available in a usable format that doesn’t require subsequent interpretation or manipulation by the recipients.
As for artificial intelligence (AI), the industry is well aware of the potential cost and time savings this can offer. Consider, for example, the possible benefits of optical character recognition (OCR), which can electronically convert typed, handwritten or printed text into a form that a computer can process, edit, display online and store compactly. It’s an area in which there has been real progress in recent years.
The reality is, however, that the use of AI in the real estate investment lifecycle in general is still in its infancy and requires significant investment before end-to-end industry and wider-scale benefits can be appreciated.
So, balancing the fact that technology will undoubtedly play an increased role in the real estate sector against the reality that budgets aren’t infinite, those holding the purse strings have to consider where best to spend their tech dollars – and that may boil down to the size and nature of the business in question.
On the portfolio side, there is undoubtedly a major incentive across the board to invest in technology. From a fund administration perspective, there is a pressure, yes, but less so for boutique asset managers where the volume and breadth of investments are not as high.
Our real estate survey ‘Real Estate Fund Operations: Have They Reached An Inflection Point’, which was published in November 2018, stated that: ‘The complexity and data demands of regulatory compliance are forcing the pace at which new and more powerful technology is being developed in the RE funds industry’. It also revealed that 46% of respondents expected their tech spend to increase over the next five years.
For many companies, fund administration brings significant challenges, which is why outsourcing is a consideration. Indeed, the trend for outsourcing administration is growing, partly due to fee pressures
on asset managers. Over the next two years, the global trend to outsource will gather pace as any reservations regarding loss of control will be countered by the need for technology solutions and cost savings.
There’s no escaping the fact that constantly shifting regulation has had, and will continue to have, an impact on the real estate sector. Indeed, in our real estate survey, nearly three-quarters of respondents (74%) stated that regulatory change has had the biggest impact on their businesses.
This increased focus on regulation is as much about enforcement as it is about change.
Regulatory requirements such as the concepts of Know Your Customer (KYC) and anti-money laundering ramped up in the aftermath of the financial crisis. The difference now is that companies must prove they are complying rather than just stating that they are, and that is having an impact on the need for more efficient reporting.
Ultimately, what asset managers and CFOs want is for the administration side to work smoothly, to quickly see all the investments and legal entities in their real estate investment portfolio, and the related statutory requirements. How can they respond quickly to regulators and auditors around these entities? And can the fund administrator provide this data in a secure usable online format within the right kind of reports?
It’s an area we’ve been focusing considerable energy on in recent years at Vistra – and we continue to invest in capabilities around these demands notably with two products – the online portal capability MyFunds, and a system called Overseas Connect.
Overseas Connect provides global oversight – therefore if a fund is invested in 15 countries, the interactive application shows in tabular form what entities are held in each one. It can also show what has been done and what needs to be done in each region in online dashboard format with all related documents being shared between key parties. This can also be done for regulatory compliance worldwide, and when a company’s operations are in multiple countries it could look at things like payroll across all these markets, and in a more standard way.
Similarly, MyFunds makes data sharing safer and more efficient. It is about centralising documents through a whole process – from KYC to the liquidation and sale of an asset in a secure environment, for example, rather than via the exchange of emails and/or ‘snail mail’.
The emphasis is on speed of reaction to regulatory change. An example of this is Opportunity Zones Funds in the US and the regulatory reporting these clearly require following recent regulatory announcements. As a point of focus for Vistra’s US Fund Administration team and for all involved parties, it is necessary to respond quickly to these market changes and trends and to expediently develop
cutting-edge solutions in order to stay relevant and demonstrate both market knowledge and expertise.
The way forward
It’s clear that there have been significant changes in the data and reporting spaces, to which technology is intrinsically linked, but there is still some way to go.
There will continue to be price pressures, and tech solutions and AI, in response, will continue to improve in related pragmatic applications. The essential point is that it’s not about getting more data, it’s about accessing good quality, insightful data as efficiently as possible, something that is an ongoing challenge for the industry as a whole.
Vistra North America
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