Vistra recently completed an extensive global industry report on non-listed real estate, and the seminar looked at the key drivers affecting fund operations and what they mean for the industry. With the real estate fund industry rapidly changing in response to increasing regulation, the report reveals that the industry has reached an inflection point in its evolution and therefore, business models need to change.
At the event, which took place at the Old Government House, experts from across the industry attended who provided a bird’s-eye view of the macro environment, how it is affecting real estate investing and emerging trends.
The event featured several experts who presented some thought-provoking material:
Below are the top five key themes discussed which conveyed some of the views expressed by the panelists and audience.
1. What were the main drivers for choice of fund structures?
The survey identified an increasing trend towards open-ended funds as a safe investment with yield, capital appreciation and more flexibility on redemption.
Andrew Boyce told the audience that without considering all the factors (such as cost), the key consideration on the type of structure is who best fits the product; the potential investors, and the types of returns and the risks involved. He went on to say that real estate has tended to polarise investors. Retail investors such as pension funds or high net worth clients, are diversifying their portfolio, the institutional investors are investing in specific asset classes. Generally, at the latter end, investors are savvier and appreciate that the liquidity processes will impact the asset valuation.
2. What are the real estate fund industry trends?
Jane Pearce noted that Vistra had seen a consolidation of Fund Managers as well as investors consolidating and investing with fewer funds and upper quartile managers. The bigger funds were getting bigger.
Increased cost of regulation (as well as increased cost of doing business), was leading trust, fund and corporate providers to consider their organisational design and operating models. Further consideration in the trust, fund and corporate provider industry was presenting opportunities to streamline businesses and reduce operational costs on a global scale.
3. What are the most significant risks of the structure of a real estate fund?
Nicholas Renny said one of the largest risks is the client’s ‘lack of knowledge’, and clients who have aspirations which can’t be achieved in the first place. He emphasised the importance of understanding clients’ needs by understanding what the fund is intended to do from the offset, in particular due to the nature of real estate funds which he believed were the most illiquid forms of assets to invest in, and slow to mature.
4. What will the impact of the recent changes from the HMRC real estate taxation rules be over the next couple of years with regards to the non-resident landlord scheme. Will structures migrate back to the UK because of this?
Martin Popplewell believed that there is no doubt that offshore structures will diminish, and that there would be more level playing field between onshore and offshore. However, he went on to say that it depended on what the drivers were for the structure, therefore, it was case dependent. He added that there are a multitude of non-tax benefits, such as familiarity with the islands quality of service providers and stability, that were all important factors.
5. Jersey and Guernsey have obtained approval from the EU Councils Code of Conduct Group and the European Council of Finance Ministers in relation to their economic substance laws. Notably Cayman and BVI remain on the ‘Grey List’, while Bermuda and the United Arab Emirates remain on the ‘Black List’. What challenges and risks do the new substance rules present?
Martin Popplewell said this was indeed welcome news for the Channel Islands, and they could capitalise on their position as an alternative jurisdiction of choice. He added that outsourcing, and the subsequent rules, were permitted. You can read more on the substance laws here.
The full ‘Real Estate Fund Operations: An Asset Manager and Sovereign Wealth Fund Perspective’ report is available for download by clicking here.
Our staff are experienced property specialists, qualified lawyers and accountants, with professional backgrounds in the real estate sector. Collectively, we bring a broad base of skills and expertise, enabling us to become a valued part of your team.
The research was conducted by Coleman Parkes Research. Telephone interviews took place in period May - June 2018. 100 respondents (66%) worked for asset management firms and 50 (33%) for Sovereign Wealth Funds or other government entities. In terms of individual roles, 65 respondents (43%) were Heads of Fund Finance, 63 (42%) were Heads of Fund Operations, eight (5%) each were Heads of Asset Management and Heads of Investments, and six (4%) were CEOs of Fund Managers.
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