The peak months for annual investor meetings are around the corner – and it looks like some real estate managers could use a little help.
Many firms see the annual investor meeting – which is typically held during April, May, September, October or November – largely as a marketing event. But in taking this approach, managers may miss an opportunity to strengthen relationships with investors, and ultimately boost fundraising.
Indeed, when it comes to relationship building with investors, the annual meeting “can be a critical tool that is sometimes overlooked,” according to LP Perspectives: The Annual Meeting, a new report from New York-based placement and advisory firm Shelter Rock Capital Advisors.
The report – based on interviews with 18 US, Canadian and European institutional investors – highlighted five areas of focus for general partners when planning their annual meetings: transparency of information; investor networking; the management team; market outlook; and guest speakers.
While investors differed as to the importance of the last three factors, transparency of information and networking were universally cited as key components of a successful annual meeting. In terms of transparency of information, they are specifically seeking information that relates to drivers of returns and components of value creation. They want managers to compare actual performance with the original underwriting and business plan, and be as upfront about bad news as they are with good news. They do not want a marketing pitch – after all, they are already invested.
The quality of the information presented at the meeting can in turn impact capital raising. A firm’s transparency of information during its annual meeting has a direct tie to its success in raising capital, according to one global secondaries investor in the report. This is a point that cannot be easily dismissed, when you consider fundraising has become more challenging for the majority of firms, with less capital being amassed by fewer funds. In 2016, 183 private real estate funds totaling $100.5 billion closed, compared with 244 funds that in aggregate raised $142.5 billion in 2015, according to PERE research.
Investors also are seeking more networking opportunities with each other at annual meetings to help build stronger relationships and exchange ideas and information. Additionally, some wanted investor-only meetings, which would facilitate more open discussion, since not all investors are willing to speak up in front of the manager. This time will allow them to gather their thoughts and concerns to be presented collectively to the general partner.
Unsurprisingly, a number of firms told PERE that they already practiced many of these core principles. On the transparency front, one manager said his company has always been open about investments that have not met the original underwriting. In fact, the firm spends more time covering underperforming transactions at the annual meeting than successful ones, given that investors have a greater interest in finding out what went wrong.
Still, while some firms may already have good practices in place for their annual meetings, there is always room for improvement. The investor feedback in the report can attest to that, although it is worth noting that Shelter Rock has its own motivations for publishing such a report.
Nevertheless, managers have acknowledged to PERE that they could do better. One maintained that he has always strived to give a balanced view when updating investors on his firm’s investments. However, he noted that the company recently changed its annual investor meeting structure to host multiple regional meetings rather than a single global meeting. These more focused events allow the firm to provide more in-depth information to the company’s capital support.
Meanwhile, a third manager said his firm used an external advisor for its annual meeting last year, and received recommendations on areas that needed work. Of course, the annual meeting is not the be-all and end-all of the manager-investor relationship. But when it comes to strengthening that relationship – especially in a tougher fundraising environment – a well-planned annual meeting can be a valuable bonding opportunity.
That’s a message worth reinforcing as the scheduled slew of meetings in the industry comes around.