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In the current environment, with the asset types that are in vogue, it is not surprising that structures that allow the long-term deployment of capital are in fashion.
The development of new semi open-ended funds has shone a light on a number of areas of complexity that will be the focus of further debate over the next year. In particular, the pricing of subscriptions and redemptions is the subject of the AREF / INREV Open Ended Fund Pricing Project.
We have been covering this project in our newsletters since AREF and INREV published their draft consultation document in November 2017. You can find our comments on the initial consultation here.
Following on from Phase 1, the project is now progressing to Phase 2 where the working group will be taking a closer look at the detailed operation and governance of fund pricing mechanisms. John is now part of the working group.
In our response to the FCA patient capital consultation, we commented that it was also important to consider the deficiencies of existing UK real estate pooling vehicles for institutional investors. This was put into sharp relief during the consultation on the introduction of capital gains tax changes.
We set out in our letter to the FCA our comments from our response to the “Taxing gains made by nonresidents on UK immovable property” Consultation Document published on 22nd November 2017.
Many funds are established outside the UK even though the majority of the investors are UK tax exempt institutional investors because of major deficiencies of existing UK real estate pooling vehicles. These are discussed in more detail on the next page.
The consultation ran until 1st April. We responded via industry bodies but also made our own brief submission that you can find here. Again, this repeats many of the comments that we have made in response to other consultations.
Unrelated to this, but of direct relevance, the DWP has also now published its response to the consultation on "Delivering Collective Defined Contribution Pension Schemes". You can find it here. This is topic that we have been covering for some years. Investment in illiquid assets by DC schemes in the UK has been hampered by the small size of such schemes. Effective consolidation through collective schemes is to be welcomed. The proposals currently only cover the Royal Mail, but hopefully this will be expanded to cover other industries.
Most of this blog has been in respect of "retail" investment in its broadest sense, encompassing, in addition to what is traditionally regarded as "retail", defined contribution pension schemes and unit linked insurance products. Whilst old fashioned defined benefit pension shemes may be in long term decline, they remain important investors.
In John's 2012 report for Association of Real Estate Funds (AREF) "Unlisted funds - lessons from the crisis", details of which you can find here, he thought that the lessons learnt from the crisis would trigger a period of significant innovation in product development. The development of semi open-ended funds continues.
John represented the investors in the conversion of what is now Aberdeen Standard Investments Airport Industrial Property Unit Trust (AIPUT) from closed-ended to semi open-ended. This was one of the first funds to opt for a long-term structure with periodic liquidity events. It has now become a model for a number of others. It is particularly attractive as model for long-term income yielding property such as industrial and residential.