INREV to construct due diligence questionnaire for fund of funds

The European association for investors in unlisted real estate vehicles wants to improve due diligence and the decision-making process on fund of funds investments.

INREV, the European association for investors in non-listed real estate funds, has turned its attention to due diligence transparent to the fund of funds sector. The trade body has now issued a due diligence questionnaire to be filled out by fund of funds managers so that they are brought in line with regular fund managers.

INREV said investors considering non-listed real estate fund of funds investments will now be able to “more efficiently compare and analyse information on fund offerings”. The questionnaire also includes a separate section on multi-manager accounts.

“This initiative was undertaken to improve the overall due diligence and decision-making process for investors considering capital allocations to funds of funds,” said INREV. “It will enable fund of funds managers and multi-managers to gather and present information on their funds in a consistent manner that meets the needs of all potential new investors interested in their funds.”

The new questionnaire extends the scope of INREV’s existing standard due diligence questionnaire for traditional non-listed real estate funds, taking particular account of issues of corporate governance. For example, the new questionnaire includes detailed questions about the financial management of the parent funds themselves, as well as questions on other considerations such as potential conflicts of interest for fund of funds managers acting for specific investors.

“This questionnaire advances the due diligence process for investors in funds of funds considerably and it can now be a much more robust and consistent approach. I think the added transparency it will bring to the sector will broaden the appeal of non-listed real estate funds to investors who may not currently be looking at this asset class,” said Erwin Stouthamer, INREV Management Board member and managing director and principal at Composition Capital Partners.

The questionnaire was developed by INREV’s Due Diligence Committee over nine months in conjunction with fund of funds managers and advisers within the non-listed real estate funds sector.

The new document has around 100 questions and totals 31 pages with the aim of capturing the most important information about fund of funds managers’ track record and performance to help investors make better informed decisions, added INREV.

INREV’s standard due diligence questionnaire was first introduced in 2008 and since then it has been widely adopted in Europe, Asia and the US. INREV anticipates that the level of take-up for the new fund of funds version to follow a similar pattern.

Lonneke Löwik, INREV director of professional standards, said: “Investors like the questionnaire because it gives them detailed information. Fund of funds managers like it because it saves them time so they can focus on delivering fund performance. For us, it’s another significant step in our ambition to bring greater overall transparency to the non-listed real estate funds industry. We’re confident that this questionnaire will become a global standard.”