A broad range of institutional investors — including pension funds, insurance firms, and sovereign wealth funds — is set to increase their exposure to real estate as an asset class, according to new research from State Street Corp.
The report found that regulatory changes have fundamentally impacted the landscape for real estate investment for investors and real estate managers.
Investors are now seeking increased transparency on the underlying investments and fees. The typical length of time between invitation and closing has nearly doubled since 2007 as investors take longer to make a final decision and pay greater attention to due diligence.
The research also found that real estate investors are looking to play an active role, demanding independence on the boards and representation on investment committees of the funds in which they have a part in.
Fund managers will face greater costs in supplying the information investors want and new industry standards and impending regulation are likely to create further reporting duties.
According to the research, large fund managers may meet these further demands by scaling up internally, but other fund managers may decide that they cannot afford to operate in these new conditions and opt to outsource to a professional service provider to meet investors’ increasing demands.
Alternatively, they may decide to consolidate with other fund managers to enable efficiencies in meeting clients’ requirements in the post-crisis real estate fund management environment.