Europe’s private equity real estate fund managers can be forgiven for feeling a little left out of the lobbying efforts over the EU’s controversial Alternative Investment Fund Managers directive.
While the hedge fund and mainstream private equity industries have been vociferous in their opposition to the more draconian elements of the draft rules, an organisation lobbying on behalf of private equity real estate fund managers has yet to materialise.
One could liken the stance that of being a water theme park spectator waiting for the performing whale to sign off with a big splash. Private equity real estate fund managers knew the splash was coming, but hoped others sitting further forward would take the soaking.
The splash has turned out to be much bigger than they thought, and now everyone is drenched, including themselves.
The body most closely aligned with real estate fund managers is, perhaps, INREV, the European Association for Investors in Non-listed Real Estate Funds. The group started life – and remains – essentially a body for LPs, although it has a significant fund manager membership base. However, INREV has been steadfast in choosing not to lobby against the directive, and is now concentrating its efforts on educating its membership about the impact of the rules, if – or when – they are introduced.
In the UK, private equity real estate fund managers have tried congregating behind AREF, the Association of Real Estate Funds, which put its members’ position clearly to the UK Treasury last year when it claimed the directive was “politically charged”. But AREF is a body representing mainly open-ended English limited partnerships, not the value added, opportunistic blind pool commingled pools of capital we know and cherish.
The British Property Industry Alliance, which is made up of five separate UK real estate organisations, also set out its concerns to the Treasury. Again, like AREF, PIM is not really for closed-ended blind pools of capital but for real estate in general. In each case, it is questionable whether the specific concerns of private equity real estate fund managers have been adequately made.
The other potential supporter for private equity real estate funds is EVCA, the European Private Equity & Venture Capital Association. EVCA has done a pretty good job of lobbying against the directive and in May it warned how even REITs could get swept up by the new regulations.
But just like INREV, AREF and PIM, the EVCA does not solely represent private equity real estate funds and their interests.
Technically, of course, there is still time to lobby the EU, but in reality the time for debate is almost over. And with no one group squarely able to voice private equity real estate’s concerns, it seems the industry will not be heard at all.
That is a shame. A dissection of all the worrisome elements of the draft directive should not be rehearsed here. Suffice to say that, when introduced, complying with rules on authorisation, disclosure, minimal capital requirements, valuations, asset depositories and leverage restrictions will all add up to increased costs and possible dilution of returns.
There may be knock on effects for investors too. Not only might those costs somehow be passed on to them, but European investors might find their choice of foreign real estate fund managers curtailed by the directive with certain non-EU managers prohibited from marketing their products in the Eurozone.
The job of private equity real estate fund managers is essentially the same as REITS – they, and their investors, get financially rewarded for creating and investing in attractive places that companies and individuals want to live, work and play in.
At a time when cash-strapped governments will be cutting public expenditure owing to austerity drives, European towns and cities will depend more than ever on private capital flows to maintain and improve facilities. Hitting real estate funds, therefore, may not seem the wisest thing to do.
The absence of any direct lobbying effort on behalf of private equity real estate funds though may also be an unwise move when the directive is finally implemented.