From little acorns grow big trees. The way Jan Willem de Geus tells it he was having dinner around Christmas a couple of years back with Pieter Hendrikse, managing director of ING Real Estate Investment Management, a former colleague at MN Services, when the conversation shifted on to the possibility of repeating the work de Geus had done in establishing EPRA, the European Public Real Estate Association, but this time with a non-profit association in the unlisted real estate fund sector.
De Geus, an executive director at Morgan Stanley Real Estate Investment Management in London, elaborates: “Basically I saw what EPRA had done for the public sector in creating a platform to address issues in the industry and help it become more accessible and transparent.
“When I switched jobs to the private funding side and wanted to get similar information for this market I was immediately stumbling into problems because there was not a lot of quality, easily accessible data available.”
Those initial discussions started to take shape at MIPIM 2002 with the invitation to a couple of institutions in the market to a meeting to sketch out an organisation that would represent investors, fund managers and interested parties in the sector: “The market has grown very rapidly in the last five years and there was no structure to meet, talk and start work on improving things. This is no longer a small market either, it has grown dramatically from almost nothing to an E180-190bn market, depending on what you count.”
De Geus says one of the major issues that needed to be tackled was the “perceived risk” of private real estate funds for institutional investors due to limited information and an inability to benchmark. “From that perspective we felt the right thing to do was to focus on improvements and so defined where this could be done. The first idea was to create a website with a database of funds and then to push for more transparency in the sector in the form of corporate governance, reporting, tax and regulation information and research.
The group then set up an executive board and began working towards the launch of INREV, the European Association for Investors in Non-Listed Real Estate Vehicles at the IPD conference in Wiesbaden in May 2002.
Expecting an attendance of around 40 people at the launch, de Geus says that when 200 turned out, many of whom signed up quickly, they knew INREV was a “serious proposition”.
De Geus notes that insurance companies, pension funds and banks involved from the beginning included ABP, CDC in France, MEAG in Germany, Generali, Prudential, ATP in Denmark, AP Fastigheter in Sweden, Skandia Liv and MN Services in the Netherlands.
Subsequently, the association hired a CEO, Judy Hill, who started working with the executive board on professionalising the format and outlining the committees that would tackle some of the major subject matter.
By the time MIPIM 2003 came round, the association was ready to finalise its mission statement and structure.
Today, INREV consists of a one-tier board dominated by investors, who count for 60% of the 15-member board. A separate management group meets regularly and is responsible for events and advancement of projects.
These seven project areas, overseen by committees of top professionals in the real estate industry, include database and website, benchmarking and performance measurement, best practice, secondary market, research, tax and regulation and membership and events.
Additionally, INREV has an ‘investor platform’ consisting solely of investors. This platform defines what an investor is, proposes investors for the management board and ensures that the 60% level is properly represented on the main board.
Twice a year the investor platform also meets with the various working groups to listen to the output and give feedback on products and issues.
De Geus believes this is one of INREV’s strengths: ‘The investors are the end users of capital and can define where INREV needs to go.”
De Geus says that although he comes from an investment banking/capital raiser standpoint, Morgan Stanley encouraged his participation in INREV, believing in the future prospects of the market.
“What is important though is that INREV is dominated by investors and that it is not some commercial association.
“We need to make this market more transparent and accessible because that will mean that investors, such as pension funds, who are not currently invested will have an easier time explaining to their boards what the potential benefits are.”
As an example, he notes that private real estate fund structures can be FCPs, LCPs or SICAVs, meaning an investor might have to spend significant money on legal and tax advice to find out whether they can actually invest – before they commit any assets.
“It would be better to provide investors with a simple matrix of structures used in Europe. They’ll always need tax and legal advice at the end of the day, but it’s much easier for investors to look at what peers have done before they make a decision.”
To this end, de Geus says INREV aims to work alongside other organisations in Europe such as the Association of Property Unit Trusts in the UK and the organisation for open-ended funds in Germany. “The key thing for us though is that we are truly pan-European. That’s important because there are developments in products that have been going on for a long time in the UK, so there is something to be learned by continental Europeans. At the same time I think there are things to be learned by the UK from investing strategies on the continent, where things are much more international.”
De Geus adds that INREV’s role is not about promoting indirect real estate per se: “It’s about saying, you have real estate exposure and this comes in different forms; direct, indirect – private or public, which is the way the market seems to be evolving.
“The Dutch market has been progressive in this way and so have Switzerland and the Nordic region. We want to make our section of the market as open and clear as possible.”
Evidence that INREV is already proving its worth came with the signing of the 100th membership in March this year – less than a year after inauguration and well ahead of target.
Says de Geus: “There is a clear interest from the industry and all the investors that are investing internationally are signing up, so they see the benefit in this for themselves.”
The task ahead, however, is to create the outputs that can justify their membership fees, says de Geus.
Drilling down into the work of the various committees, he says progress has been good on producing an index and benchmark possibilities for private funds. (See page 29).
Regarding the question of transparency in performance and fees the issues are a little more challenging: ”Typically funds do disclose this but they keep it within their investor group. But investors would like nothing better than to have an overview of private funds and be able to say this was the performance, the expenses and the fees related to it.”
The advent of international accounting standards has made this a more pressing concern, although definition of ‘performance’, for example, whether it is net of fees, with or without leverage, internal rate of return or total return, is still being explored.
On the issue of reporting, de Geus believes there could be advantages for both investors and fund managers in agreeing a standardised set of requirements: “It would be helpful for fund managers if there was some kind of agreement amongst investors as to what is needed and to get a minimum reporting requirement. An investor could then ask a fund manager to keep to this standard so that if they look at ten other funds they can compare.”
A further, perhaps more problematic area for private real estate funds is liquidity and the development of a secondary market.
“If you are a pension fund liquidity is important because asset allocation decisions need to be reflected in the portfolio. It would be good to have this ability with private real estate funds. It’s never going to be as liquid as listed shares, but you have to move towards a better position on this.” (See page 25).
The committee working on liquidity is due to produce a white paper before the end of the year, based partly on an investor survey currently being collated.
Additionally, in an association driven by investors, corporate governance comes high on the list of desires.
“We’re not expecting a perfect world, but we have to ask if there is room for improvement. Do we have an overview of how corporate governance works for private funds in Europe? Probably not.
“We need to look at different market practices and there may be multiple solutions, but I personally would love to have some kind of governance guidelines because it makes life easier when you’re launching a new fund and raising new capital.”
However, he flags up the quandary that if a fund becomes too public in areas like disclosure and governance then it could fall under the watch of regulators.
“There’s a tension here because private vehicles are under a different jurisdiction than public vehicles. I don’t know what those boundaries are exactly, but of course there is the disclosure issue about which funds are raising capital in the market where a fund could be seen as a semi public fund, which has a whole different set of dynamics. We have to be careful with that.
“It might be possible to do if we keep these issues among the membership, for example.”
An INREV committee is also looking at definitions of investment styles (core, core-plus, opportunity) and what these actually mean. “I don’t think it’s unrealistic to say that there could be an INREV definition on styles, which asks fund managers whether they comply.”
Asked whether INREV could repeat the current European model in other regions such as Asia or Australia, CEO Judy Hill, comments: “I think it will follow naturally. It’s not something we’re setting out to do now - we don’t want to run before we walk - but there’s no doubt the model can be replicated.”
Focusing on what she believes is the practical use of INREV to investors, Hill says one recurring question has been the value of a database where all the funds are closed: “The response is that very few funds are ever really closed and from our existing database you can find a lot of funds that are open and we’re moving to a more active listing of those.
“The database is searchable by region and sector and through the committees we’re addressing some of the issues of comparison, for example with funds with different gearing. We think it’s best to start with an imperfect system and chip away rather than have nothing at all.”
Membership fees for INREV come out at E10,000 per annum for everybody except academic and non-profit bodies who pay E500 per annum.
And as Hill points out, members are not obliged to commit for long periods: “Formally we have a four-week notice period for members not renewing, but I wouldn’t enforce that because I would hate to have any reluctant members.
“We are also happy to have people coming to a couple of meetings to see what we do. We’re very flexible in that sense. If we know the prospective member then we can also give them access to the members-only area on the web for a limited amount of time also.”
Membership of INREV is not country specific either, in that if an employee of a firm in one country signs up then the whole organisation effectively has membership.
Says Hill: “This means that although we’ve got 100 members, we have over 300 people listed. We’ve gone for a very simple membership structure.”
Hill is also keen on emphasising the more inclusive industry angle of INREV, rather than just as a vehicle for investors.
“We don’t want to sell INREV as working for investors at the expense of others. We want to emphasise that it is everyone working for the same goal. We risk giving the message that investors are god and all of us are second class.”
De Geus adds: “The role of the investor platform is clear, but the actual work within INREV is done by a lot of people that are not investors. Investors make up 25% of the whole association, and the importance thing is that they are the end-user of product.
“It’s about investors working with the fund management industry and a lot of fund managers are investing their house money in what we are doing. The institutions can move the steering wheel, but the banks and advisors are driving the car because they have the manpower to do this.”
As de Geus summarises: “We’d like the association to become ‘the’ platform for the private funds industry.”
Few who have witnessed INREV’s rapid evolution in the last year would doubt that it is well on its way to being just that.

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