30 Jun 2022

Dear All

I hope everybody is well and looking forward to a summer break. 

I suppose that one day I will stop saying how much I’m enjoying (re)meeting people face-to-face, but I’m still enjoying it and I’ll still keep saying it. 

Recently the team has been very busy, particularly around:

  • the Committee Day
  • continuing action around fund liquidity
  • success in direct lobbying
  • expanding membership. 

 

Committee Day

In early May we had our first Committee Day for three years, which many of you attended.  I wasn’t sure what the response would be but in the end the turnout was great and there was a high level of engagement.  Thank you to those of you who came for your input and enthusiasm. 

There were many ideas generated from the table discussions for the AREF team to follow up around ESG, Tech & Data, Residential, Diversity & Inclusion, Levelling Up and, the largest category, “All Things AREF”.  The team will be following up with actions as appropriate and I suspect many of you will be involved. 

Liquidity

Various fund members and AREF team members are still engaged around the two major liquidity issues facing us: the FCA’s ruling (or lack of) on longer notice periods for the daily-traded retail funds, and the Long Term Asset Fund.  The main barrier to both of these initiatives is the inability of most of the platforms serving both DC and retail investors to take funds with a notice period longer than a day.  In addition take-up of the LTAF is being held back by concerns about the FCA’s responsiveness and about RICS guidance on valuations.  In addition, the adoption of a Collective DC model by pension funds would make it easier for them to hold long-term assets. 

Retail funds

The FCA issued a Feedback Statement in May 2021 saying that it would not finalise a position on notice periods until the Productive Finance Working Group that designed the LTAF created the operational infrastructure necessary to support the distribution of the LTAF and other non-daily dealt funds.  This has not yet happened, even though the LTAF was launched in November 2021.  The Retail Funds Committee is in the process of setting up a meeting with the FCA to discuss alternative proposals for accommodating notice periods. 

Platforms and CDC

AREF is starting to work together with other organisations to (i) encourage the platforms to adopt a flexible notice period model and (ii) encourage the use of the Collective DC model.  Both these measures would enhance the ability of DC schemes and retail savers to invest in illiquid long term assets.  We are having conversations with the Social Market Foundation, with other members of the Property Industry Alliance and I am starting to open conversations with the PLSA and the major investment consultants. 

Lobbying

We have started to have success in establishing more direct links with Government, Bank and regulators.  The most recent examples are:

Bank of England

My inclusion in the Bank of England Commercial Property Forum alongside representatives from across the UK real estate industry: AREF, BBP, BPF, Centre for Cities, CREFCE, DLUHC, Homes England, High Streets Taskforce and RTPI.  It was a very wide-ranging discussion but the main points most relevant to AREF members were CVAs, High Street Retail Auctions, platforms/DC and Climate Reporting standards/net zero/whole life carbon costing.  There will be a follow-up. 

DLUHC

The team has secured a meeting with senior government advisors at DLUHC to discuss levelling up.  The proposed agenda covers:

  • the cities and regions that are being prioritised for regeneration,
  • barriers to investment including platforms and DC,
  • what can government do to aid private sector investment in places marked for regeneration?
  • What can AREF do?

The Government’s levelling-up agenda will be important to the industry in the coming years and I’m glad that we are establishing relationships with the relevant department at this early stage. 

FCA

As mentioned above, Jacqui and the Retail Funds Committee is in the process of setting up a meeting with the FCA to discuss alternative proposals for accommodating notice periods in the absence of any decision from the FCA.  Hopefully this can help arrest the decline of the sector. 

Expanding membership

Ed and I are focussing on two main areas for increasing membership: residential funds and debt funds.  Progress has been made on both these areas.

Residential

We recently held a breakfast meeting ( more information here) with a number of residential fund managers and members of the AREF Residential Funds Working Group.  Thank you to our Affiliate member Greenburg Traurig, who kindly hosted us at their offices in the Shard. 

We have all seen the growth of the sector in the last few years across BTR, student housing, affordable housing, student accommodation, senior living and care homes.  The prominence of the sector is only likely to become greater in the context of the Government’s levelling up agenda. 

It was clear at the meeting that there is appetite for some sort of residential index.  What we also heard loud and clear is that simplicity wins over complexity, at least initially.  We are also involved in discussions with MSCI, as are a number of members, about MSCI’s plans in this area. 

There are also clearly a number of areas AREF can assist with regarding the lobby, from the 2% surcharge for international investors to encouraging policy that stimulates supply rather than demand, for example.  As we discussed, numbers really make a difference with this kind of engagement, so coming together as one distinct voice for residential funds will be key to our collective success.

Debt

We have also started discussions with MSCI and a few members who manage debt funds about the provision of market data to increase transparency and attract more capital to the sector.  Given the complexity of the non-bank lending market, whether this results in an “index” or in some other form of market information remains to be seen.  However, what is clear is that there is appetite from investors and the larger managers for something to be set up. 

 

I wish everybody a great summer and look forward to catching up with more of you in person over the coming weeks. 

Author

Paul Richards

Paul Richards

CEO, AREF

Paul is the CEO of AREF.  Before joining AREF in 2020, Paul was Head of the European Real Estate Boutique within Mercer’s investment consulting business for almost 10 years, previously he was Head of Indirect Real Estate Investment and Global Managed Accounts at LaSalle Investment Management, where he was responsible for managing global portfolios of unlisted real estate funds for clients from Europe and Asia Pacific.

He has over 25 years of real estate experience in investment, corporate finance and research, and has advised investors, occupiers and venture capital companies on property portfolio strategy and on financial structuring, including PFI, senior and mezzanine debt and joint venture arrangements. His employers have included LaSalle Investment Management, Cushman & Wakefield and Henderson Investors.

Before coming into the world of real estate, Paul worked in marketing and market research. He originally studied Physiological Sciences at Lincoln College, Oxford and has a Master of Science in Real Estate from City University Business School, London, now Cass Business School.