Keeping the faith
The private real estate sector has a watchful eye on how regulation, data and technology are impacting business. These factors exert unprecedented pressures on fund managers’ operating environments, across all alternative asset classes. Given this uncertain climate, managers are opting for traditional domiciles – with familiar tax and regulatory regimes, and optimal conditions for doing business – for their next funds. Yet despite the potential for disruption, fund managers that responded to this survey are not expecting it to negatively impact performance over the next decade.
Delaware is the domicile of choice for a clear majority of respondents: 54 percent intend to register their next fund in the US state. It is clear why from the survey data. The US state is seen to offer optimal conditions for doing business, and the most favorable regulatory and tax frameworks. It is worth keeping in mind the majority of respondents are headquartered in North America, which may have had an influence over choice. Nevertheless, it is a vote of confidence in Delaware as a business-friendly jurisdiction.
Disruptive times
The growing use of big data and technology is translating into more regulatory pressures and greater disruption
With regulation around the use of data tightening – think GDPR – it is not surprising that data management strategies, particularly regulatory data services and risk and analytical services, are considered as at least moderately important by most survey respondents. In response to these pressures, and perhaps an indication of a perceived skills gap in-house to handle these issues, 27 percent of respondents are intending to increase their outsourcing of these activities in the coming months. None of the respondents plan to decrease outsourcing of regulatory and legal services, and only 3 percent are planning to decrease outsourcing of data management services.
These findings marry with where private real estate fund managers see most potential for disruption to their business over the next three years: regulation, by a considerable margin, followed by big data and artificial intelligence.
Growth forecast is good
Expectations are conservative in the short term, but the long-term outlook is positive with particular optimism for Asia
Managers are upbeat about their long-term growth prospects, despite the increasingly disruptive regulatory and operating climate: 67 percent expect their real estate AUM to have increased by over 31 percent in five years’ time; 79 percent forecast it will have increased by that amount in 10 years’ time. Expectations are more measured in the short term, but growth is on the cards nevertheless: 44 percent of respondents are anticipating up to 11 percent AUM growth over the next year.
Respondents envision growth across their investor bases in the next five years. They are particularly bullish about expanding their pool of institutional investors:
40 percent expect to see a large increase in this cohort, compared with 28 percent and 13 percent for retail and corporate, respectively. Few anticipate their investor base will shrink.
Asia is expected to generate much of the expansion in
funds’ investor base, with almost half of respondents anticipating a large increase from the region in the next five years.
Methodology
PERE surveyed the 75 largest private real estate managers. We received 51 responses: 31 are headquartered in North America 11 in Asia and nine in Europe. Answers were given on a strictly anonymous basis and the results aggregated. Where respondents were asked to give three answers, the first answer was given three points, the second two points and the third one point. An average was then taken of the total.
This article is sponsored by RBC. It appeared in the Regulation and Fund Domiciles supplement with the May 2018 issue of PERE.
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