Of crowdfunding and cash boxes

While some investment managers continue to thrash out ideas to rework the traditional fund model, other folk at this week’s MIPIM paid more attention to fresh and innovative methods of matching capital with deals.

Among the more humdrum themes at this week’s annual MIPIM property show at Cannes about the vast amounts of US and Asian capital chasing deals in Europe and how investors are wanting more ‘risk’, there was also talk about a phenomenon that could become a real game-changer for the private real estate industry: the trend towards disintermediation of the fund manager.

For example: on the hotel terraces and inside the restaurants – and even at the end of PERE’s own panel session inside the Palais des Festivals conference building – people were debating crowd-funding, peer-to-peer lending networks and click-and-buy real estate platforms. Realty Mogul, iFunding, Relendex, and Fundrise.com were being mentioned among a new generation of platforms that could impact the private real estate investment universe.

MIPIM delegates were also reacting to the UK Financial Conduct Authority’s recent release of rules on how individuals, institutions and start-ups may raise money through these online portals to finance their activities. And there was also chatter about how America’s JOBS Act and the SEC lifting the ban on general solicitation had implications for crowdfunding, too.

Then there was talk about investors increasingly looking to replace the investment manager with operating partners. A new €1 billion partnership between Canada’s Healthcare of Ontario Pension Plan (HOOP) with new logistics group Verdion is a recent example.

And finally, there was a buzz around the rise of publicly listed vehicles in Europe. Of these, several have already launched this year, and at MIPIM we learned of yet another to one to happen shortly – in Spain. Referred to as ‘cash boxes’ that offer open-ended capital, these also have been mooted as an alternative to traditional private fund managers. They have the potential to attract new types of investors as well as give traditional investors in closed-ended funds another option to get exposure to markets they like.

Note how these trends are all interconnected. Operators of loan-based crowdfunding platforms, enabling clubbing investors to click and buy office properties; institutions partnering operating partners to build, buy and run assets directly; or investors seeking their fortunes via listed structures all have the potency to accelerate the marginalization of the traditional fund manager. Granted, crowdfunding and its variants may be small in scale at the moment, more relevant to tech companies, and there may also be restrictions and regulatory oversight. But in the fullness of time this movement towards liberalisation and disintermediation has the potential to diminish the role of the fund manager considerably.

On stage at an INREV event on Wednesday, the debate very much was centred on how to fix the traditional fund model with GPs and LPs still trading views on what manager discretion should be appropriate in today’s fast-moving market. We’re not suggesting that this discussion is no longer relevant. It’s the old tug of war and it will rage on. But in the meantime, practitioners should also pay attention to how best to use – or compete with if necessary – those new sources of capital sources, structures and technologies that are beginning to dominate people’s thinking. This is not an evolution to ignore.