Any real estate professional will tell you that when it comes to successful business, your contact book is an important ingredient. With decades of combined experience and having raised two UK funds we are reasonably versed on the network of advisors that are associated with doing effective business.
Traditionally, placement agents were the most instrumental in matching institutional investors to fund managers with smart investments. In the 15 years leading to the Global Financial Crisis (GFC) these agents would be employed by managers seeking to be introduced to investors wanting to increase their exposure to real estate. The placement agents would be focused on helping managers shape their private placement memorandums, before facilitating the introductory meetings.
All of this changed in 2008; in the firing-line of the smoking gun, institutions shied away from releasing any more precious capital from their now jealously-protected pots. Institutions committed to fewer and fewer managers, thus potentially making the appointment of placement agents by the manager economically unviable.
To deepen this cut, fund managers also found their fees being squeezed by those institutions needing to make greater returns for their stakeholders. As such, managers increasingly needed to strike up their own relationships with the institutions.
This rather abrupt interruption to business brought about an evolution in the role of the placement agent, moving it to being more of a consulting role. They now help fund managers restructure their funds or raise money in geographies or jurisdictions with which they are not familiar. Placement agents have also become valuable in the burgeoning secondaries real estate market, where liquidity is poor, as well as in the consolidation of the private equity real estate market. Essentially, agents have been described as being used to ‘fill the cracks’ of the industry in fundraises, as opposed to being the main body of cement that they previously were.
And so we now arrive in the situation in which we currently operate, where a new type of player has arrived on the field.
In recent years we have seen the rise of the real estate consultant, an advisor whose role has become increasingly important since the GFC through the assisting of institutions that are looking for real estate destinations for their investments generally. Unlike the placement agent, which is employed by the manager, these consultants are employed by the investor, which values their in-depth research, analysis and therefore understanding of the sector. These consultants vary in type, from general consultancies with real estate teams to specialists with their own funds.
The in-depth research that consultants provide to their clients includes a review of the various fund managers and products that are available for investment, and a recommendation as to which would be the most suitable. Given their status as an institutionally employed advisor, these managerial reviews are independent, with some consultancies reviewing a manager before they have even been contracted by a client in anticipation of that client’s needs.
And so we, as managers, now find ourselves working increasingly with these consultants which not only put us in contact with institutions seeking real estate opportunities, but which can also advise us on the type of fund structure, fees and incentives that are currently in demand.
My own opinion on the matter is simple: the industry will change and so industry professionals must be ready to change with it. Whereas in previous years we worked closely with placement agents for the raising of our funds, we now also work alongside consultants to achieve the same aim. Fund managers which cannot change their business models, processes and habits may not survive the inevitable evolution of the sector, hence why we place great emphasis on the ability to be adaptable. Astute advisor selection is part of that evolution.
Having experienced the crash of 2008 – where a lack of industry understanding and complacency led to one of the worst financial crashes in recorded history – it is also my personal view that an investment model based on in-depth research and analysis can only lead to a more aware and thus sustainable industry.
Investors are now being encouraged to examine their managers in minute detail before and throughout every investment, and as fund managers, we whole-heartedly support this enhanced need for transparency, openness and sensibility of practise. Accordingly, we now place greater emphasis on working closely with a range of different advisors than in previous years.