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“Unlisted funds – lessons from the crisis”, a report for The Association of Real Estate Funds (AREF)

The five years up to the start of 2012 were a period of unprecedented turbulence for the real estate funds industry.


The Association of Real Estate Funds (AREF) asked John Forbes of PwC to undertake a study of the behaviour and practices of its member funds in dealing with consequences of this.  Despite the unique level of stress to which they have been exposed, both the open-ended and closed-ended fund models in the United Kingdom have largely weathered the storm. However, the clear perception among both fund managers and investors interviewed was that some funds and managers weathered the storm better than others, and that the full consequences of the crisis have yet to play out.  


Transparency between fund managers and investors is crucial to the continued prosperity of the real estate fund management industry. Most fund managers feel that they have taken significant steps to improve the quality and quantity of communication with investors, although investors feel that there could be further improvement in quality.  There are specific areas where greater transparency is 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. This is a key area in which AREF can assist through ensuring greater consistency in the terminology and disclosure.  There is a general perception that closed-ended funds are less transparent than open-ended funds. As investors’ capital is tied up for a longer period, this is a significant area of concern and needs to be addressed.


It is important that there is a continuing dialogue between fund managers and investors. Many interviewed expressed the concern that the collective memory in the industry might be short. A continuing dialogue and debate on these matters will hopefully ensure that this is not the case.  .Although a more demanding investor base represents a threat for some fund managers, it represents an opportunity for others. Those who manage to rise to the challenges in respect of transparency and governance will differentiate themselves, as will managers who focus on product development to create innovative funds.  The aftermath of the period of volatility represents a unique opportunity for product development.  Whilst fund managers believe that communication with investors has improved, there needs to be more dialogue around these major issues. Communication with investors needs to be as much about listening to them as it is about informing them.

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