AREF’s Education and Training Committee held its second event of the new F-O-R-T educational series (Funds, Operations, Regulation, Tax) on 7th February 2019, launching its paper focussing on Trends in Real Estate Fund Structures. The paper was sponsored by Citco and the event was kindly hosted by the Real Estate Centre at Cass Business School. A copy can be found on the AREF website here.
Darren Stolzenberg, Chair of AREF’s Education and Training Committee welcomed a capacity crowd, giving an overview AREF’s aims to bring stakeholders in the industry, including investors, together and the committee’s work in this context. Alex Moss, Director of the Cass Real Estate Centre then took over as moderator for today’s event.
The paper was authored by independent consultant, Rachel Portlock. She ran the audience through a brief presentation of the key findings of the report, breaking it down between UK and European domiciled funds. This follows twenty two (22) detailed interviews she had with leading representatives within member firms with relevant experience and gave a broad representation of the various members of AREF, across funds, affiliates and investors. The presentation can be found on the AREF website here.
Following her presentation, Rachel joined the panel session, fielding questions from Alex and the audience. The other members of the panel were Richard Batchelor, Partner at Eversheds Sutherland, Ben Mardon, Director at Citco and Jonathan Brady, Director, Real Assets, Blackrock.
The panel briefly gave their own insight regarding trends they are seeing for fund structures and then took questions from the floor.
Among the topics discussed were the challenges service providers have in sourcing talent to meet the sustained demand within the various fund jurisdictions, particularly in Europe. It was also noted investors were increasingly looking for global structures as they seek to diversify. There was also a rising resistance from institutional investors to structures associated with tax havens, or perceived tax havens. Indeed, it was considered that new tax regulations (e.g. EU anti-tax avoidance) are likely to be one of the biggest challenges to structures going forwards – perhaps most so for partnerships.
On the pause in REITs popularity, it was thought that they were a less flexible solution. The lack of take-up of Dublin based funds was perhaps simply due to the ease and legacy dominance of Luxembourg based funds. It was thought the lack of a workable limited partnership structure was also a drawback in Dublin, though reform on this front could make it more attractive. But investors already know and are very comfortable with Lux.
It was suggested that the industry should engage with the government regarding the need for an onshore, mainland UK, unlisted closed-ended, tax transparent solution. The panel noted the policy shifts being seen, for example the Patient Capital initiative and changes to permitted links for pension funds to incorporate illiquid assets. Perhaps this signals a more receptive approach? It was noted though that there appeared to currently be a mismatch between the policy makers’ wishes and the platforms’ requirements for daily dealing. It was suggested that AREF was in a position to consider the various issues more holistically and engage accordingly.
It was apparent there is still a lot of demand for new funds, particularly open-ended funds investing in Europe. Much of this was at the value-add and opportunistic end of the spectrum.
AREF would like to thank Rachel Portlock for her excellent work in pulling this report together and all the interviewees for making it possible. We would also like to thank Citco for sponsoring the paper and the launch including the video; the panellists for providing their expert insight; and Alex Moss for moderating so well and providing Cass Real Estate Centre as an excellent host. Lastly, thank you to all the delegates from AREF member firms and investors for making it such a success. To keep informed of all the latest news from the real estate funds industry and for future events, please take a look at AREF’s website. You can also subscribe to our monthly newsletter and please follow, like and share us on Twitter and LinkedIn!