How is compliance outsourcing supporting the Real Estate Fund industry?

18th February 2020 3572 - Blog Posts

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

In 2019 publications including PERE and RBC reported that 27 per cent of the real estate managers surveyed planned to increase their external/outsourced compliance support. This response comes at a time where there is greater 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.

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

In 2019 publications including PERE and RBC reported that 27 per cent of the real estate managers surveyed planned to increase their external/outsourced compliance support. This response comes at a time where there is greater 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 mean that firms have to comprehensively navigate with a robust governance framework.

The amendments in premarketing rules have also had an impact on real estate funds. The major vote in December 2018 saw legislative proposals agreed to change the 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

E: jwoodbury@lawsonconner.com
D: +44 (0) 203 696 2560