To a large extent, the INREV Guidelines underpin the entire purpose of the association. IQ caught up with Mike Hornsby, senior independent advisor and former member of INREV's Management Board and John Ravoisin from PWC, who is currently on INREV's Management Board, for their thoughts on the evolution of one of the most important aspects of the association’s work over the last 20 years.
Real Estate has become a major asset class. It’s role as a diversifier of risk and an effective inflation hedge has placed it front and centre from a portfolio construction point of view.
However, at the outset, institutional allocations to non-listed real estate hovered around the 10% to 12% mark. What held investors back from committing more was the complexity of the asset class. Twenty years ago, there was little meaningful information, or reliable data, and a perception of opacity. Ultimately, investors lacked the trust they needed.
As Mike Hornsby explains: ‘There was a perception of fog around this asset class. The first thing was to improve that. It was all about creating definitions and market standards. On the other side it was about corporate governance. The third angle of attack was about reporting and transparency.’
The creation of the Guidelines is the result of a huge collaborative endeavour – as broad and deep as the community that INREV represents.
INREV recognised early on the need for a consistent and transparent framework of best practice standards for all market participants. So, the Guidelines came into being.
Since their inception, the INREV Guidelines have benefited the European non-listed real estate industry in obvious ways, massively shifting the dial in terms of shared standards. Notably, they have harmonised the structure and contents of reporting to investors, helped new entrants to the industry to better understand reporting requirements, and secured comparability across different markets and vehicle types. According to John Ravoisin, the Guidelines mean the industry is now able ‘to speak the same language’.
Joined up thinking
The creation of the Guidelines is the result of a huge collaborative endeavour – as broad and deep as the community that INREV represents. One of the key strengths of the Guidelines is that they are designed by industry experts working together through the various relevant INREV committees. They also directly reflect the needs of the industry, as well as following the European regulator – for example on key topics and their attendant rules, such as AIFMD and SFDR.
The INREV Guidelines have become the foundation of the way forward for the industry. Defining the INREV NAV, for example, has been a cornerstone for performance comparability, as has the Standard Data Delivery Sheet, ‘SDDS’ for reporting standards. The result is that investors can now have trust in the information they receive and confidence in the decisions they make about vehicle and manager selection. As John points out, ‘If you compare the INREV NAV of one fund with another one, you know that you’re measuring exactly the same thing’.
The Guidelines represent a deep set of professional standards which need to be operationally practical as well as reflecting what the industry requires and desires. Hence, they have continual evolution embedded in their DNA. But they must also build on what was there before. Mike summarises the situation: ‘The principles of the Guidelines have never really changed. You can’t disagree with the principles, they’re so fundamental. The question is, what’s the best way of following those principles?’
Technically, the current area of focus for the evolution of the Guidelines is sustainability and ESG because the requirements for the industry to meet its obligations in this respect are gathering pace. There are many ways to look at sustainability and to evaluate ESG criteria, and many different standard-setting bodies. INREV wants to ensure the best possible alignment and create standardisation across the industry with regard to ESG. Progress is already being made with the recent introduction of the new sustainability module. This recognises best practice from other sources and focuses mostly on reporting and governance.
A further work in progress is the ongoing collaboration with international partner associations, ANREV, NCREIF and PREA, to align guidelines and standards wherever possible. To understand regional differences is the first step, as alignment may never reach 100%, but it’s critical that there’s sufficient synergy to enable a common understanding of core definitions, at the least.
As to the future, John offers this insight: ‘We don’t know exactly how the Guidelines will have to evolve, but the fact that we have all the experts of the market within the committees – tax, performance measurement, due diligence, ESG, or reporting, etc – means those experts and those committees will drive the change. INREV will continue to set the standards at the European level, which is really important.’