How to enhance the investor appeal of your fund

Investors are more demanding about the performance of commercial investment funds than ever before. And when they aren’t satisfied, they are quick to make a change.

With dry powder – uninvested capital – peaking at $423.1 billion in 2022, the environment will likely be very competitive in 2023.

Real estate investors have many options today. When a fund doesn’t meet expectations, they can quickly go elsewhere. Two practices can help to protect a fund from investor fallout:  

• Focus on investor expectations, not just regulatory requirements 

• Meet investor demand for independence and transparency

"The capital is talking today. Investors are marketing investment decisions about a variety of assets, so they expect frequent updates on CRE fund activities and insights"

Alexander Jaffe

Senior Director, Valuation & Advisory

Focus on investor expectations, not just regulatory requirements 

Traditionally, CRE fund operators prepared valuations and reports according to regulatory requirements. But with more options now available to them, investors expect to be regularly and fully informed regarding how their real estate assets are performing – regardless of the type of fund.

Fund managers should be prepared to meet key investor expectations, starting with these three:

Quarterly performance reports should be a minimum standard

To appeal to investors, small investment funds must strive to meet the same standards as the largest funds. Whereas historically, open-end funds provided investors with frequent reports and detailed analysis, this is now the expectation for all fund types.

Clear, consistent key performance indicators

Consistency, transparency and reliability are highly valued by institutional and non-institutional investors alike. Using advanced technology platforms based on industry standards, fund managers need to accurately and comparably measure what matters – the key areas driving fund performance and the targets that provide a clear sense of what they are aiming for.

Appropriate benchmarking

Benchmarks are important to today’s investors for assessing return and risk and comparing the performance of a portfolio or strategy with similar properties over time.

Fund professionals must be prepared to respond to investor expectations for information regarding how their assets are faring with frequent, comprehensive performance reports, consistent performance measures and coherent benchmarks.

Meet investor demand for independence and transparency

When markets are volatile, investors seek more reassurance. They expect fund managers to communicate more frequently and in more detail regarding the status of fund strategy related to investment risk, return and goals.

Investors also expect transparency and independence with no conflicts of interest in connection with determining and reporting asset values. For instance, rising numbers of individual investors are investing their personal savings in CRE investment funds.

Since they are not typically as knowledgeable and experienced as institutional investors, investment advisors and regulators are seeking more stringent oversight of fund strategy, performance reporting and valuations.

Utilizing a qualified, reputable third-party to validate strategy, asset values and performance provides another layer of confidence. Managers can see where strategies are working and where they could be improved, and independent valuations and reports help to back up strategies with quantifiable metrics.

By focusing on investor expectations and meeting demand for independence and transparency, you can protect your fund from investor fallout and stay ahead of the curve.