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“Unlisted funds – lessons from the crisis” four years on
In the case of the former, transparency between fund managers and investors is crucial to the continued prosperity of the real estate fund management industry. In 2012, most fund managers felt that they had taken significant steps to improve the quality and quantity of communication with investors, although investors felt that there could be further improvement in quality. There were specific areas where greater transparency was felt to be essential. For open-ended funds, the detailed workings of the timing and pricing of subscription and redemption are so fundamental to the model that a lack of transparency and lack of understanding among investors has the potential to cause lasting damage. Significant steps have been taken in this key area, and the basis of underlying valuation have also been the subject of further work by AREF and others.
Lessons from the crisis - what has been learnt?
As January 2016 marks the fourth anniversary of the report, "Unlisted funds - lessons from the crisis", and there are those who suggest the next crisis might be looming, it seems to be a good time to revisit the findings of the report and to consider whether we are in a better place now than we were in early 2007. The report was written by John Forbes, then a partner at PwC, for the Association of Real Estate Funds (AREF). The original report and additional materials can be found here.
The five years up to the time of publication of the report at the start of 2012 were a period of unprecedented turbulence for the real estate funds industry. After five years of boom up until early 2007, the market stagnated rapidly, and then hit a rapid downward spiral after the liquidity crisis in the summer of 2007. This turned into a full scale global financial crisis following the collapse of Lehman in September 2008. Despite the unique level of stress to which they were exposed, both the open-ended and closed-ended real estate fund models in the United Kingdom largely weathered the storm. However, the clear perception among both fund managers and investors interviewed during the research for the report was that some funds and managers weathered the storm better than others, and that the full consequences of the crisis had yet to play out.
The original report identified some immediate areas for improvement in behaviour and some longer term drivers for product development.