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Building a successful partnership: real estate and outsourcing, part III
Building a successful partnership: real estate and outsourcing, part III
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Building a successful partnership: real estate and outsourcing, part III

19/02/2016

What are LPs looking at during due diligence of GPs

Today, there are increasing requirements to deliver accurate reporting in a timely fashion to LPs. To prove they can do this, they have to either provide references, or explain that they have a specialised provider whose day-to-day job is to process information with the sole objective of producing meaningful, accurate and timely reporting.

The second element is technology. Our GPs are telling us that technology is under scrutiny by LPs as well. In that case, a GP can claim that they are using SAP or Yardi Voyager, which are known systems, but cost a lot of money to maintain. It is also very costly to keep up with the reporting requirements with no mutualisation.

There can also be a question on both sides as to the tailoring of the reporting and also the standardisation of the reporting and it is the capability of having the right technology to accommodate for all these different requests that is the issue. Once again, this is our day-to-day job to manage.

Picking the right provider: what to look for

You need to find a provider that has true real estate expertise and can operate the full life cycle of the fund. The GP needs a partner that understands investor expectations in terms of reporting and communication throughout the fundraising period, investment period and divestment period. They also need a partner that is able to facilitate a smooth secondary transaction. At the fund level, an administrator that has been active in the real estate market for a number of years should master the topic, but the problem can come when looking at what happens beyond the fund level, down to the intermediaries, the property companies and the properties themselves. The GP needs someone that can manage the information, which is not just finance and accounting, but also information on the tenants, the assets, the leases – all the activity of the day-to-day management of the properties. There are two possibilities: either you have a group that can offer property management because they have a strong real estate arm, which is independent from the in house asset management arm, and that can provide some end-to-end solutions to clients in a number of countries – some kind of a top-down approach. Or you have a real estate manager that invests in acquiring the knowledge and system, and is therefore able to deal with the different type of information that you need in fund administration – a bottom-up approach.

GPs need to ensure that the partner they choose is investing in people, in the right systems, and that he can provide an end-to-end service. It is also important to have a formal and in-depth due diligence process. The traditional RFP process is not necessarily sufficient; you need to have cross due diligence. This is not a mature market, so the provider will need to conduct due diligence on the manager as well. GPs should also get proof of concept on a number of aspects: the life of the transaction, reporting processes, online access to data, how the data will be managed, and so on. It is crucial that this element is performed thoroughly.

In the case of the lift-out, it is really important to find a true partnership so that we can, as a service provider, ensure the loyalty of staff and the continuity of the management of the specific operations of the client. That is a key area that we really insist on. If you start by choosing a provider that has a history of very low turnover and highly loyal staff that definitely helps.


 

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