How is compliance outsourcing supporting the Real Estate Fund industry?

3rd June 2019 3572 - Blog Posts

The real estate fund industry has been subject to a host of new regulations in recent years, and as for most asset classes, regulatory demands look set to become more complex in the case of a hard Brexit. What is the effect of compliance outsourcing on the industry?

Recent research from publications PERE and RBC found that 27 per cent of the real estate managers surveyed planned to increase their compliance outsourcing this year, in response to increased regulatory pressure and a perceived skills gap.

A big pull for real estate funds who choose compliance outsourcing is the ability to use a third party AIFM to navigate regulatory change and pre-marketing rules.

Another big driver for real estate funds when outsourcing compliance is the access to specialist skills  which leaves their own team free to focus on core, profit-generating activity – in fact a separate survey from KPMG found that the desire to focus on core real estate activities was the primary driver in choosing outsourcing for 51% of respondents.

Using a third-party AIFM can alleviate the pressure of compliance for real estate fund managers without relinquishing too much control. Ever-changing regulatory requirements such as the AIFMD, which is due to change its parameters again as the 2017 review clause comes into play, and jurisdiction-specific legislation such as the Dodd Frank Act in the US can all be navigated by the robust governance framework which comes as part of using a third-party AIFM.

The recent changes in premarketing rules have also had an impact on real estate funds – last December, the Economic and Monetary Affairs Committee (ECON) of the European Parliament voted on legislative proposals for a Directive and Regulation on the cross-border distribution of collective investment schemes, which aims to make premarketing possible while preventing it from being used to invoke reverse solicitation. As many real estate funds enter an EU country to market to one or two investors that they may or may not use, a third party AIFM can be a more efficient and cost-effective way of circumventing this regulatory change.

Lawson Conner can provide a one-stop solution to global clients who are managing investments in real estate funds. Our specialist team is experienced in all UKLA, FCA and AIFMD requirements, and our AIFM entity can manage your entire REIT launch and provide a fully compliant AIFMD solution.

Joe Woodbury
Director, Investment Management Solutions

D: +44 (0) 203 696 2560