The ongoing coronavirus crisis has forced managers to re-evaluate many aspects of their business, including adapting to changes in their investor base and determining the best locations to domicile funds going forward. The market sentiment during these uncertain times is captured in our exclusive survey, carried out in conjunction with RBC Investor & Treasury Services.
The survey looks in depth at the impact of covid-19 on the industry, such as how much managers view the crisis as a barrier to meeting their objectives in 2021 compared to other factors including the economic environment and competition.
One notable finding is that in an unpredictable and volatile market, the expectations for growth were surprisingly optimistic, as outsourcing gathers momentum and ESG initiatives are expected to generate growth and drive innovation.
The survey included a wide range of managers, both in terms of geography and size, in order to gain a clear perspective of current views surrounding regulatory changes and future opportunities in the marketplace. In total, we surveyed 57 firms, of which 53 percent were located in the US, 25 percent in Europe and 9 percent in Asia. Over a third of survey respondents have AUM of more than $5 billion and 84 percent have more than $1 billon.
Strongest growth expected in North America
Real estate fund managers expect the strongest growth in their investor base to come from North America, continental Europe and parts of Asia. However, they expect less growth from the UK, Australia and China.
More than three-quarters of managers predicted either a large or small increase in their investor base to come from North America, with 37 percent expecting strong growth. Meanwhile, a total of 72 percent expected growth in their European investor base but were less optimistic about the UK. While 44 percent of managers expected a small increase from both the UK and Europe, more were optimistic about seeing a large increase from European investors – 28 percent versus 13 percent for the UK.
While 64 percent of managers expected growth from Asia (excluding China, Middle East and Australia), only 34 percent expected growth from China, which also saw the largest number of managers expecting their investor base to shrink (5 percent).
Faltering economy threatens managers more than covid-19
A flagging economy presents the largest threat to real estate investment managers achieving their objectives this year, with more than half saying it was the main barrier to their success.
Participating managers were asked to list the top three barriers to achieving their goals in 2021, leading to a score for six risk factors. The economic environment scored nearly twice as high as the second most cited factor, competition. However, the covid-19 pandemic and its consequences scored only marginally less than competition.
Geopolitical events and regulation were also considered significant barriers to managers getting what they wanted in 2021, scoring almost as highly as competition and the pandemic. However, technology – which is becoming increasingly important for real estate investment managers, especially for fund administration and reporting – appears to be firmly regarded as a benefit rather than a threat to managers, with only a small number declaring it one of their top three threats.
Regulatory burden is a price worth paying
The majority of real estate managers surveyed believe that the regulatory burden involved in attracting retail investor capital to their funds is a price worth paying. However, that majority is only slender.
A total of 52 percent of managers said the regulatory barriers currently in place, as well as possible future requirements, for allowing retail capital into fund products did not outweigh the benefits of attracting more capital.
More real estate investment managers are turning toward retail capital as a way to grow and diversify their businesses. At the same time, retail investors are looking for higher return strategies, especially those with higher income. Matching their needs with the ambitions of managers, however, involves dealing with a strict regulatory environment designed to protect consumers. This burden and the likelihood of more regulation in the future was enough to discourage 48 percent of managers.