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The relationship between investors and investment fund managers is changing, largely because the tech-savvy younger generation expects timely access to accurate information. Investment managers who meet the changing demands of clients can reap competitive advantages. Scott Tavolacci, Yardi’s regional director of investment management sales, explains why in a piece that first appeared in PERE magazine.
The need for accurate reporting seems self-evident, but this realization was a long time coming. Two events in the United States were particularly influential. One was the Sarbanes-Oxley Act of 2002. Designed to protect investors from fraudulent accounting practices, the legislation placed new emphasis on providing accurate data to both public and private players.
After that, it often seemed that investors and investment managers could do little wrong. In hindsight, however, financial reporting remained surprisingly lax. Then in 2010, in response to the financial crisis and recession, the Dodd-Frank legislation triggered a new wave of regulations and forced investment advisors to reexamine their processes and information flows.
Even aside from these requirements, investment managers want information that goes beyond a financial statement and which does not need to be entered into multiple software solutions. Fund managers who fail to heed that call, instead relying on outmoded reporting systems, put themselves at risk.
In the past, many investment managers used customized proprietary systems to provide the necessary reporting and drive more-informed business decisions. They came to realize that these outdated tools were inadequate to meet the demands of today’s investors.
Investment managers have been slow to embrace technology for a number of reasons. One of them is the complexity and the cost of transferring data to a new platform, which is largely due to the nature of real estate as an asset class. Tracking a single lease may involve hundreds of data points in a variety of ways.
Technology solutions designed to bridge the reporting gap more efficiently have emerged in recent years in response to higher investor standards. Today, software providers offer cloud-based, fully integrated platforms designed to enhance the quality, accuracy and transparency of reporting and analysis.
For example, they provide dashboards that dissect performance data by a variety of characteristics, such as a region, sector or manager. Users can drill down through a fund to a single property or tenant, allowing investors to gauge their exposure at any level.
Additional customizable filters allow users to measure the performance of assets against key indicators, such as cap rates, net operating income and annual return, and industry benchmarks such as the NCREIF property index. Such capabilities allow investors and managers to gauge possible over-allocation in underperforming categories or under-allocation in hot regions or property types, providing the basis for shifts in buy/sell strategies.
The benefits for investment managers of adopting newer technologies are clear: Everyone in the chain of ownership can work on the same page, utilizing the same timely, relevant data as well as analytical tools that provide vastly deeper insights into the decision-making process. By fulfilling investor expectations of greater transparency, accuracy and flexibility in reporting, programs created specifically for investment managers go a long way toward securing the investment manager’s place among the client’s trusted advisers.
Today’s investment management platforms harness investors’ appetite for more operational data, which can be used to develop robust predictive analytics and better control over risk profiles.
As old models for risk management in commercial real estate fade away, so must many long-held beliefs. Cash may still be king, as the old saying goes, but it must now share its throne with a new co-ruler—data.
Learn about Yardi’s solutions for enhancing investment reporting, investor satisfaction and transparency.
