Trends in Fund Structures
AREF’s Education and Training Committee held its second event of the new F-O-R-T educational series (Funds, Operations, Regulation, Tax) on 7th February 2019, launching its paper focussing on Trends in Real Estate Fund Structures. The paper was sponsored by Citco and the event was hosted by the Real Estate Research Centre at Cass Business School.
Darren Stolzenberg, Chair of AREF’s Education and Training Committee welcomed a capacity crowd, giving an overview AREF’s aims to bring stakeholders in the industry, including investors, together and the committee’s work in this context. Alex Moss, Director of the Cass Real Estate Research Centre then took over as moderator for today’s event.
The paper was authored by independent consultant, Rachel Portlock. She ran the audience through a brief presentation of the key findings of the report, breaking it down between UK and European domiciled funds. This follows twenty two (22) detailed interviews she had with leading representatives within member firms with relevant experience and gave a broad representation of the various members of AREF, across funds, affiliates and investors.
Following her presentation, Rachel joined the panel session, fielding questions from Alex and the audience. The other members of the panel were Richard Batchelor, Partner at Eversheds Sutherland, Ben Mardon, Director at Citco and Jonathan Brady, Director, Real Assets, Blackrock.
The panel briefly gave their own insight regarding trends they are seeing for fund structures and then took questions from the floor.
Among the topics discussed were the challenges service providers have in sourcing talent to meet the sustained demand within the various fund jurisdictions, particularly in Europe. It was also noted investors were increasingly looking for global structures as they seek to diversify. There was also a rising resistance from institutional investors to structures associated with tax havens, or perceived tax havens. Indeed, it was considered that new tax regulations (e.g. EU anti-tax avoidance) are likely to be one of the biggest challenges to structures going forwards – perhaps most so for partnerships.
On the pause in REITs popularity, it was thought that they were a less flexible solution. The lack of take-up of Dublin based funds was perhaps simply due to the ease and legacy dominance of Luxembourg based funds. It was thought the lack of a workable limited partnership structure was also a drawback in Dublin, though reform on this front could make it more attractive. But investors already know and are very comfortable with Lux.
It was suggested that the industry should engage with the government regarding the need for an onshore, mainland UK, unlisted closed-ended, tax transparent solution. The panel noted the policy shifts being seen, for example the Patient Capital initiative and changes to permitted links for pension funds to incorporate illiquid assets. Perhaps this signals a more receptive approach? It was noted though that there appeared to currently be a mismatch between the policy makers’ wishes and the platforms’ requirements for daily dealing. It was suggested that AREF was in a position to consider the various issues more holistically and engage accordingly.
It was apparent there is still a lot of demand for new funds, particularly open-ended funds investing in Europe. Much of this was at the value-add and opportunistic end of the spectrum.
FutureGen Fund Life Cycle Series 'Back to Basics'
EVENT 1: Intro to Funds
28th February 2019
Tom Pinnell, Chair of the AREF FutureGen Committee kicked off the event with a brief introduction outlining the purpose of the FutureGen Fund Life Cycle Series as a ‘back to basics’ course aimed at the member’s FutureGen staff. The audience were asked in a live poll ‘have you been involved in fund structuring?’ and out of 36 voters we had a 50/50 split of those who had and those who had not.
Alex Moss then took over to give a brief overview of the Cass Real Estate Research Centre and its purpose.
We heard from speakers Andrew Boyce, Carey Olsen; Darren Stolzenberg, CMS UK and Patrick Groves, CMS UK on Fund Structures.
The audience were asked in a live poll ‘what do you need to think about when planning/structuring a fund?’ There was a mix of results including risk, jurisdiction, exit strategy, fees, return on investment, debt, tax, assets to buy and regulation.
In the main presentation Andrew covered the overall planning considerations when setting up a fund, looking specifically at different factors to consider when setting up a new vehicle. This included structuring considerations, for example target investors/markets, corporate governance, set up and ongoing costs, liquidity requirements and levels of regulation in the country of domicile. Andrew also noted some interesting points on the labour spent on nurturing a good reputation and how quick a good reputation can be lost.
Patrick presented a couple of the different types of vehicles and benefits of different jurisdictions. While looking at types of vehicles, Patrick compared some of the differing attributes of funds which are onshore vs offshore, open vs closed-ended, regulated or not and listed or not.
Darren took the audience through some of the regulatory issues in marketing a fund including AIFMD and passporting.
Andrew and Darren also touched on some of the future developments for fund structures including uncertainty surrounding the passporting regime in a post-Brexit industry, and the increase in fund managers domiciling their funds in Luxembourg as a response to this uncertainty.
The session was brought to a close with a couple of questions from the audience on the impact of the upcoming changes to Capital Gains Tax legislation on fund structures and the effect Brexit will have on AIFMD and the UK.