Good corporate governance is a cornerstone for the success of non-listed real estate investment vehicles and refers to the structure, processes, policies and laws that determine how an investment vehicle is managed and controlled. There are a number of different frameworks, some driven by local or EU regulation, which support this objective and there are many common themes which run through them.
For non-listed real estate investment vehicles that target institutional capital, the level of regulation can be lower than for other investment classes such as retail funds or listed structures. This is mainly due to the nature of non-listed real estate funds, which have typically low liquidity as well as entrepreneurial investment managers. In such cases, a robust corporate governance model is essential. Both INREV Guidelines and the Alternative Investment Fund Managers Directive (the “AIFMD”), which regulates fund managers in Europe, tackle the key principles that are central to a robust corporate governance approach, which:
- Aligns interests between investors and the fund manager;
- Manages conflicts of interest;
- Ensures the accountability of the fund manager; and
- Promotes transparency.
The constitutional terms of each investment vehicle, stated as fully and completely as possible, should address how principles and best practices should be applied by those involved in the management of the vehicle, thus creating binding contractual obligations for compliance by the vehicle and its investors. This module describes INREV’s best practice principles and sets out guidance on how to apply these in practice.
The INREV Guidelines focus on the vehicle itself, whereas AIFMD focuses on the manager. The INREV Corporate Governance Guidelines are principle based, expecting that people apply the principles in their behavior, whereas the AIFMD is primarily describing what the legal obligations and responsibilities of the manager are. In addition to the Guidelines the AIFMD Manager Guidance report provides a practical guide for managers who fall under the EU regulation. The report explains key functions based upon the specific governance requirements of the AIFMD and the more principle-based governance best practices of INREV.
Local and EU legislation in different jurisdictions will always override principles that do not have the force of law. INREV’s principles and best practices of corporate governance represent a generic framework and can be applied across a wide range of real estate vehicles. In order that a non-listed property vehicle or an investment manager is compliant, careful consideration should be given to both local and EU legislation applicable in the domicile of these entities.