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John Forbes, independent consultant and former real estate tax partner at PwC, says that the plight of British property funds after the property crash can be compared to the humble ammonites - molluscs that lived before the dinosaurs.
About 250 milion years ago, "the great dying" resulted in most of the life forms on earth - including 90% of ammonites - being killed off. After this "extinction event", new life forms emerged, including many new species of ammonites, which were better suited to their environment,
Forbes has argued for several years that the real estate funds industry is in the throes of a similar "extinction event",
The industry has been under pressure from all sides. Not only has the property market taken a severe beating following the collapse of Lehman in 2008, a new round of European regulations, such as AIFMD [Alternative Investment Fund Managers Diirective}, means that running a fund now invoilves additional bureaucracy for reporting and disclosure. This necessitates more manpower and sometimes considerable expenses to keep platforms and software updated.
Working on Excel will no longer cut it for today's managers, as one Mayfair-based manager explains: "Our back office function has grown considerably over the past year to help us get ready for all the disclosure requirements that AIFMD requires - and also to cope with the demands of investors who simply want more communication. We're an established, mid-sized house and we've got the infrastructure to accomodate this, which is also true for the big institutions. They can cope with the regulatory change. But the smaller ones may suffer disproportionately.
Forbes admits that the market hasn't behaved exactly as he and many others predicted it would, but he still believes change is on its way. It's just that they might have to take a longer view.
"The increasing demands of regulators and investors are pushing up the cost of being a fund manager, creating pressure for consolidation," he says.
"This is now moving beyond the theoretical. The European Union's Alternative Investment Fund Managers Directive came into effect on 22 July, requiring fund managers to become
authorised over the next year. As the market for raising funds is improving, the demands of investors are also becoming more obvious to managers"
Another issue is that the real estate funds world has become more internatonal in recent years. Managers have been able to tap into pools of capital from as far afield as Japan, Malaysia and Canada and particulalry from Asian institutions, which are poised to increase their global allocation to real estate by up to $150bn over the next five years, according to CBRE.
However, internationalisation has brought new pressures to bear on fund managers. Staying competitive in a global marketplace means keeping a broader range of investors happy. John Forbes explains: "The globalisation of the investor base is raising the height of the hurdle as investors from different countries come with their own views as to minimum standards of governance and transparency. Managers seeking to raise capital internationally need to meet the highest common factor across their prospective investor base."