REVIEW OF INVESTOR REPORTING TRENDS ASIA-PACIFIC 2016

Transcription

1 REVIEW OF INVESTOR REPORTING TRENDS ASIA-PACIFIC 2016 PROFESSIONAL STANDARDS

2 FOREWORD Welcome to the 4th annual Review of Investor Reporting Trends and best practices published between PwC and ANREV. This report aims to provide fund managers and investors with insights into the trends in investor reporting practices in Asia-Pacific, and to enable benchmarking of current reporting practices across different geographic regions and fund strategies. Following the formal incorporation of the requirements set out in the 2014 edition of the INREV Guidelines (the Guidelines ) ( during the 2014 reporting cycle and 2015 review, this year s review sees managers, who are already familiar with the requirements, looking to strike a balance in their reporting, between incorporating the Guidelines, and ensuring that their reporting does not appear too voluminous. It has been very pleasing to see that many managers across the region, have made the effort to enhance their reporting based on the feedback given during last year s survey interviews. During the study, we reviewed the annual, quarterly and ad-hoc investor reporting submitted by 40 non-listed real estate funds, and compared them to self-assessment conducted by the funds managers using the INREV compliance checklist, and the detailed reporting requirements of the INREV Guidelines. The results were then compared and benchmarked to peers across the region as a whole, and by strategy. Private feedback was given to all of the 26 participating fund managers, mostly through physical interviews or conference calls. In addition to this, discussions were held with relevant stakeholders and service providers active in the region, including several investors, valuers, sustainability professionals, and IT security consultants, in seeking their perspectives on reporting advances, difficulties, and views on where reporting practices should be headed. Please refer to Appendix 1 for details of the framework and approach adopted for this study. Throughout the publication, the views of interviewees and/or survey respondents are presented as direct quotations, but without attribution. On behalf of PwC and ANREV, we would like to extend our sincere thanks to all who shared their valuable time and expertise during this review. We trust that all participants received useful feedback from the exercise, which will assist them in enhancing their ongoing investor reporting and relations processes. We look forward to meeting them again as part of future reviews. Paul Walters Asia-Pacific Real Estate Assurance Leader PricewaterhouseCoopers Limited Amélie Delaunay Director, Research and Professional Standards ANREV

3 TABLE OF CONTENTS EXECUTIVE SUMMARY 1 1 THROUGH THE LOOKING GLASS 4 PERSPECTIVES ON THE EVOLUTION IN REPORTING PRACTICES IN ASIA-PACIFIC 2 UNDER THE MICROSCOPE 8 COMPLIANCE WITH THE REPORTING MODULE OF THE INREV GUIDELINES 3 SNAPSHOTS 3.1 ENIVRONMENTAL, SOCIAL, GOVERNANCE AND INVESTOR REPORTING CYBER SECURITY 29 4 TAKING THE VIEW IN 30 CONCLUSIONS AND NEXT STEPS APPENDIX 1 REVIEW FRAMEWORK AND APPROACH 32 APPENDIX 2 DETAILED COMPLIANCE RESULTS 37 SPONSORING ORGANISATIONS 39

4 EXECUTIVE SUMMARY Objective of the review This review s objective to provide an update on current market practices in investor reporting within the non-listed real estate fund industry, and in particular to what extent investor reporting complies with the reporting module of the INREV Guidelines (the Guidelines ). The Guidelines, which are based on best practices and investor reporting requirements in Europe, can be a differentiator for fund managers in their dialogue with investors whether they launch new funds or are reporting on existing vehicles. In addition to this, with a view to making the Guidelines more relevant to the diverse range of fund managers broadly adopting them across the region, we hope that by sharing feedback from Asia-Pacific fund managers, investors, and service providers we are able to provide valuable input to INREV and ANREV as they continue refining the Guidelines, as part of the Global Standards initiative, and by stratifying the Guidelines by relevant fund styles (i.e. core, value-added, and opportunity). Whilst much of our discussions this year have centred on the new INREV Sustainability Reporting requirements, we have not included specific compliance with those guidelines due to their release after the 2015 reporting cycle. Section 3 of this report discusses these new guidelines in greater detail. Performance Following last year s jump in compliance, where many fund managers had spent time and effort in adopting many of the revisions to the previous edition of the Guidelines, most participants stated that along with their investors they were happy with the level of their reporting, and generally comfortable with their performance against the Guidelines. It was heartening to see that many were keen to improve further, but with their focus shifting to making refinements rather than wholesale revamping of existing reporting. Whilst we saw further improvements from many recurring fund managers, we also saw new survey entrants with lower compliance, and some highly compliant managers with more standardized reporting, submitting one standard fund s reports rather than enter multiple submissions as in previous years. The net result meant that headline compliance in 2016 improved to 70.3%, experiencing an increase of 2.6 percentage points from the 2015 review. When breaking the performance down by fund structure to adjust out the effects of weighting, it becomes evident that the performance of both open-end and closedend funds improved year-on-year, by 6% and 2% respectively. The performance of participating funds is analysed with a closer lens in examining the year-on-year performance of participating funds in Section 2 of this report. We would expect to see further improvements in the years ahead, especially by newly launched vehicles in light of heightened investor expectations generally being experienced. 01

5 Table 1 - Analysis by structure Section of Guidelines & Structure Open Closed Open Closed Number of funds Fund documentation for reporting framework 75% 78% 64% 52% Content and frequency of reporting 83% 80% 80% 80% General Vehicle information, Organisation and Governance 82% 61% 80% 58% Capital structure and vehicle level returns 93% 76% 96% 81% Manager s report 91% 80% 90% 85% Property report 83% 70% 76% 73% Risk management 89% 60% 82% 63% Other disclosure requirements 1 30% 30% 12% 27% Overall 78% 67% 72% 65% 1 The Other disclosure requirements section includes disclosures related to the INREV NAV, and INREV Fee Metrics. 02

6 Feedback from fund managers As set out in Appendix 1, private feedback was given to all participating fund managers and respondent funds, including detailed benchmarking reporting, which was followed by physical interviews or conference calls with nearly all participants. During the interviews, we also sought feedback from managers and investors for INREV s ongoing development of the Guidelines. From our discussions with the managers, it was evident that while they used the Guidelines in a bid to enhance their reporting, an overwhelming number intimated that they were happy with the depth of their current reporting, with the focus shifting to finding an optimal mix and improving reporting effectiveness, i.e. reducing volume while meeting investor needs, between traditional annual and quarterly reports, webcasts, other periodic information submissions, and standing data available on portals. In order to tackle the general growth in reporting demands, managers were looking at combination reporting, with a few fund managers expressing a preference to share a quarterly quantitative Standard Data Delivery Sheet, or equivalent, with investors, supplemented by an analytics type of report with commentary document. Over the past 2 years, fund managers focused more exclusively on linking the Guidelines to their investment strategy and performance. However, this year s discussions shed light on more diverse themes, from investor attention on Environmental, Social, and Governance data reporting, to a greater focus on cybersecurity and data management concerns. Finally, with managers raising more capital from Europe and the US, greater interest was expressed on the alignment with US investor reporting requirements, who typically have much more variety in their reporting formats, due to the prevalence of consultants who have their own metrics and formats. The key take-away from most fund managers during these conversations is that investor expectations and discussions have branched out from the core financial reporting aspects. To keep up with changing and varied expectations, fund managers need to keep up their conversations with investors as they strive to meet their needs, some have employed specialists in ESG and IT, and many have supplemented in-house capabilities with external consultants. Development of best practice guidelines Following the launch of the revised Guidelines (in 2014), INREV additionally launched the Sustainability Reporting Guidelines (in April 2016). While many welcomed the attention brought to ESG reporting by these guidelines, some were confused as to how they tied in with other reporting initiatives, and more importantly for them, how managers could streamline reporting to ensure that it met the varied reporting initiatives (e.g. GRESB, GRI, INREV Sustainability Reporting Guidelines). On a more general level, managers suggested that more seminars on new or changes to reporting guidelines would be very helpful in ensuring that they could better prepare for them ahead of their effective dates. The focus has now shifted to the development of Global Standards, which commenced in 2014, when INREV, ANREV NCREIF, and PREA executed a Memorandum of Understanding, has started to gain momentum with the first milestone being reached in May 2016, where the Phase I results on Fee and Expense Metrics was launched. As the Guidelines develop further, Asia-Pacific fund managers will have a better sense of what investors globally are looking for, and will be better able to benchmark themselves against their peers from other parts of the world, which based on the results of the survey indicate that they are well able to do. 03

7 Section 1 THROUGH THE LOOKING GLASS 04

8 Perspectives on the evolution and trends in reporting practices in Asia-Pacific With the growth and maturation of the sector in the region, there are higher expectations on the quality and breadth of reporting of its leaders and players. Having observed this shift over the past 12 months, and during prior surveys, we once against engaged with fund managers on matters that extend beyond financial reporting and the Guidelines, to gauge how much the reporting spectrum has widened, and where investor expectations are heading. The key newer themes and related perspectives which were voiced by fund managers and investors during our review clearly indicate that investor reporting is at a tipping point between the old forms of static manager-driven reporting, to a veritable interactive investor-driven dialogue. Deal or no deal At a time where the sector is growing, most fund managers have made enhancements in operations and reporting over the past months, it is clear that the gap between the high flyers and the rest of the industry has reduced considerably. With that said, performance in the region continued to be mixed, and thus the onus is now increasingly on fund managers to deliver, with one fund manager intimating: Given how the industry has evolved, we can no longer rely on things like reporting to set ourselves apart. Bottom line is, we have to go out and do our job, which is to deliver more value to our investors than the next firm. With the amplified focus on managing portfolios and investments, and unlocking value while mitigating risks, fund managers are being more careful when valuing investments. Where 3 years ago, we saw many participants employing a single large valuer across the entire regional portfolio to ensure a level of consistency in the valuations, we are increasingly seeing fund managers considering employing valuers on a countryby-country basis. The reasons for this shift are twofold, being: to better ensure compliance with local bank covenants; and the use of local standards in addition to RICS Red Book valuations to ensure fund managers can have recourse against valuers in local courts, should any issues arise down the line. This shift, is not without its issues as a few fund managers investing in emerging markets have to go through a more robust process of working with their valuers. This is especially the case when it comes to quality or access to data, as fund managers and even investors lamented that most markets in Asia are still opaque. 05

9 One investor highlighted such challenges in China, where the lack of market information for certain parts of the country, results in the use of non-traditional sources, such as local contacts and chambers of commerce, in valuing their assets. The opacity in the market could be reduced as industry bodies, such as ANREV make inroads in the industry, and work with SOEs and life insurance companies, both of which have large real estate portfolios, to contribute to industry benchmarks, and databases. Beyond valuation-related considerations, investors are asking for more property-specific information from rental concentration and tenancy lists, right down to ESG-related performance information. With these greater reporting requirements, come needs and budget for greater reporting capabilities. Bringing the page to life The traditional model of reporting as backward looking is increasingly being replaced by dynamic reporting with more and more fund managers starting to report key information even before the quarter ends. For a number, the quarterly reporting cycle starts off with NAV and cash flow estimates 5 to 10 days before the quarter end, followed by flash NAVs within a week of the end of the quarter. The focus then shifts to traditional quarterly reporting, and the completion of quarterly investor reporting templates, many of which are similar to the SDDS. In addition to this, investor reporting teams then field follow up queries that arise on an ad hoc basis. It is evident that reporting has gradually become an ongoing conversation, and each fund manager is engaging in this dialogue with different reporting styles (i.e. from traditional written reports to infographics to charts). With the transformation of reporting in full swing, most finance teams are cautious about stretching themselves too thin, and are thus looking for ways to streamline reporting. Of particular note, was the fact that a few fund managers with a limited number of larger investors were looking to combine overlapping elements of their quarterly reports and investor reporting templates. This, in theory would offer more investor-centric quantitative information, with commentary to match. However, it would be difficult for fund managers with larger pools of investors to execute, especially if they are not institutional players familiar with such templates. In addition to this, with the depth of information being sought by investors on the underlying properties, fund managers are looking at different methods to respond to these requests. In one instance, a fund manager stated that their investors were extremely interested in the progress of property development projects. In response to these requests, the fund manager stated: We had to get a bit innovative, and hired a company to use drones that would fly over and across the properties and take videos as they were being developed. The footage would then be uploaded onto our portal, giving investors a true picture as to what s happening on the ground. 06

10 ESG go green or go it alone Following on from the above change in the reporting landscape, the attention paid to Environmental, Social, and Governance (ESG) analysis has changed tremendously, from being once considered as something good-to-have, it is now looked at as a key consideration as part of a manager s investment decision-making or property development processes. This shift, has been driven by both economic factors, by greater investor focus on these aspects, and by greater regulatory scrutiny in parts of the region. Keeping in lock-step with these industry shifts, INREV launched the Sustainability Reporting Guidelines with the aim of steering fund managers through the various other sustainability guidelines and benchmarks that exist. The aim of the new sustainability reporting guidelines is to offer Sustainability reporting as part of company annual reporting The INREV Sustainability Reporting Guidelines have been revised to form a disclosure framework that delivers meaningful data to increase visibility and insight into a vehicle s ESG efforts and also details their next course of action for improvements. With these shifts taking place, we once again profile ESG within section 3 of this report. Cyber security & the tech revolution New technologies, from reporting portals to cloud solutions, and increasingly interfaced systems that have made day-to-day operations and reporting more convenient, have increased funds and fund managers to potentially more breaches and ransomware. This is echoed by IBM s findings in its recent 2016 Cyber Security Intelligence Index report, which stated that the number of extortionrelated breaches in financial services increased by 80% in It is therefore no surprise that secure systems have become integral to fund managers success. In section 3 of this report, we further explore the industry s views on the issue, what is being done currently, and what reportingrelated developments are around the coming down the road. 2 IBM, 2016 Cyber Security Intelligence Index: 07

11 Section 2 UNDER THE MICROSCOPE 08

12 Compliance with the reporting module of the INREV guidelines This year has provided the first apples to apples benchmarking opportunity with regards to the latest INREV Guidelines, launched in 2014 (the Guidelines ). This year, both current and prior years investor reporting cycles were after the launch of the Guidelines, and thus the changes observed this year in reporting statistics though not as significant, are nonetheless more meaningful. In this year s results, compared to 2015, most recurring participants have maintained their performance at a sound level against the reporting module of the Guidelines, as they and their investors for the most part are comfortable with the current content in reporting. Within this group, there are a number of previous participants who have implemented many of our recommendations from last year s feedback sessions, where these managers have often considered different possibilities in enhancing their quarterly and annual reporting templates (including the our 2015 Top Tips for better compliance), and improved their compliance score without significant effort. New managers are not too far behind as some have been eagerly sharpening their understanding of the INREV Guidelines, in their bid to strive for full compliance, for both existing structures and new funds currently being marketed, with or without specific compliance commitments made to investors. With this mix in mind, the overall results of this year s survey are set out below, before analysis is presented by geographic mandate, style, and GAAP. The results have then been analysed in greater depth by each of the eight sections of the reporting module of the Guidelines. A. Overall results I. Headline performance As set out in the executive summary, the headline compliance with the reporting module of the INREV Guidelines has improved from 67.7% to 70.3%. Where non-traditional reporting mediums (e.g. web portals for sharing of items such as standing information) are accounted for, the overall compliance rises to 74% (2015:72%). Additionally, the 29 funds that participated in both this and last year s survey (termed in this report as recurring fund participants), have achieved a headline compliance of 71%, while the 11 new funds participating in this year s survey averaged a compliance of 61%. The difference between the recurring and new participating funds can largely be attributed to recurring funds having the benefit of a year s head start in incorporating the Guidelines, particularly for larger managers with more resources. Results have shown that the number of funds complying with over 75% of the Guidelines has jumped from 30% last year to 50% this year. Such marked shifts demonstrate that the awareness of the Guidelines is strong, and recurring participants in particular continue to drive enhanced implementation. The surveyed results have also reflected that a fund s headline compliance is linked to what stage of the life cycle a fund is in. We have commonly seen funds that have an active portfolio tend to have more relevant disclosures to the guideline requirements, while some guidelines are not as applicable for certain funds that are early in their development arc. A detailed breakdown of the performance distribution by quartile of the participants is set out in Appendix 2 Detailed Compliance Results. Despite the overall increase from last year, common areas of non-compliance do still exist, and given this, we have set out below the primary reasons that were typically identified for noncompliance. 09

13 Reasons for non-compliance As part of their submissions and the private feedback sessions, fund managers were asked to provide reasons why each of the INREV Guidelines requirements was not met. Based on these responses, the reasons for non-compliance have been broadly categorised into the following themes: Relevancy to investors: As with prior surveys, certain disclosures set out in the Guidelines were felt to be irrelevant for their investors. Instead of packing reports with insignificant Chart 1 - Overall level of compliance by section learning from old hands 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Content and frequency of reporting Fund documentation for reporting framework General verhicle information, organisation and governance data, fund managers tended to focus the sharing of information to that their investors found important and meaningful. Not only does it condense their reporting, but it also reduces confusion to investors on any additional disclosures that they may not understand without sufficient context; Diversity of reporting mediums: It is still a common response from fund managers that not all communication is purely through quarterly or annual reporting. Investor reporting has progressed in parallel with the advancement of technologies. Requirements relating to Capital structure and vehicle-level returns Overall 2015 Overall 2016 Manager's report Property report Risk Management Recurring 2016 New Participants 2016 presenting static information or commentary are no longer specifically confined to periodic reports, and are instead commonly available on online portals or covered on phone calls, face-to-face meeting or online webcasts. In order to comply with reporting guidelines around disclosure of such information, whilst not clogging up the actual reports, we have advocated in our meetings, linking periodic reporting to portals where such information is maintained. Chart 1 above shows the breakdown of the overall compliance with the Guidelines, where compliance within the 8 sections for the current year ranged from 30% to 84% (21% to 86% in the prior year). Other disclosure requirements Overall 10

14 II. Performance by Style/Structure Table 2 - Compliance by Section of Module 2 and by Fund Style Section of Module 2 Guidelines Weighting Core (open and close-end) Opportunity and value added (open-end) Opportunity (closed-end) Value added (closed-end) No. of Funds Fund documentation for reporting framework 2% 75% 83% 74% 83% Content and frequency of reporting 7% 85% 80% 78% 82% General vehicle information, organisation and governance 13% 81% 79% 59% 64% Capital structure and vehicle-level returns 7% 92% 96% 71% 86% Manager s Report 16% 92% 92% 74% 89% Property Report 28% 84% 85% 67% 72% Risk management 13% 92% 81% 55% 66% Other disclosure requirements 15% 29% 38% 24% 40% Overall 100% 79% 79% 63% 73% Note: The percentages set out in the table above represent the respondent funds compliance with that section in The arrows next to the 2016 compliance levels represent the year-on-year change, as elaborated below. Increase over 5% Neutral (change within 5%) Decrease over 5% 11

15 Overall, improvements were noted for both open and closed-end funds across all three fund styles: Core, Opportunity and Value Added. Having understood and applied the Guidelines in the prior year, the overall results show less dramatic improvements. Thus, recurring participants have shifted their focused on improvement of their existing reporting. One significant improvement was the compliance score relating to INREV NAV, which from feedback sessions is due to more investors requesting them, and thus INREV NAV reporting becoming more common in the region. On the other hand, compliance with Capital structure and vehicle-level returns has a marginal decrease, which we understand is caused by the Capital structure part of these guidelines requiring a degree of static information, which was not disclosed so often in the annual or quarterly reporting, but more increasingly shared through other mediums or documents. Consistent with previous years, open-end funds generally outperformed closed-end funds across all three styles in terms of compliance. Open-end funds generally scored higher as they operate in a more transparent setting, where market practices for open-end funds are well developed. However, closed-end funds report through an ongoing dialogue with respective fund managers and require less information to be presented in quarterly and annual reports. Despite requiring fewer disclosures in general than their openended peers, the scores for closed-end funds have improved as fund managers have made further disclosures to satisfy investor expectations. Among the three fund styles, core funds continue to score better than value-added or opportunity funds due to the fact that the INREV Guidelines are slightly more suited to core funds. Open-end funds continue to score higher than their closedend counterparts for value-added and opportunity funds, but surprisingly, a closed-end core fund has scored significantly higher than its counterparts. 12

16 III. Performance by geographic mandate Table 3 - Compliance by Fund Style and Geographic Mandate Country Strategy - Geographic Mandate Fund Style/structure Single Country Overall Multi-Country Australia Japan China Others Core Open-end 82% 38% (NEW) % Closed-end % (NEW) - 87% Value Added Open-end 77% (NEW) % 82% Closed-end - 62% 77% 97% (NEW) 67% 70% Opportunity Open-end % 69% Closed-end - 44% 59% 60% 64% 60% Overall 81% 52% 63% 81% 69% 68% Number of funds Proportion of Top Quartile Performers 20% 0% 0% 20% 60% 100% Note: The percentages set out in the table above represent the respondent funds compliance in The arrows next to the 2016 compliance levels represent the year-on-year change, as elaborated below. In line with the existing Index confidentiality rules, any peer group created must include at least three funds from at least three different fund managers. Increase over 5% Neutral (change within 5%) Decrease over 5% 13

17 Looking at the levels of compliance with the Guidelines, by fund style, and country strategy, the findings can be broken down as follows: Trendsetters: Australian funds have maintained a high compliance score due in part to a transparent property market, where managers can more easily access underlying data to aide compliance. However, funds listed under Other Single Country mandates have overtaken Australian funds by a margin of 6%, with funds managed by Singaporean fund managers being the top contributors. Mainstream: China and multi-country mandated funds both performed just under the average score, with China and multi-country funds dropping 2% from the previous year s review. The compliance scores in multi-country funds varied drastically, as it contained 60% of top quartile performers but overall managed a below-average score. IV. Performance by GAAP Despite the steady improvements in compliance levels as a whole, there is volatility on the level The question of which accounting standards to of compliance within the different accounting adopt still requires meaningful consideration standards adopted. by fund managers, especially when a new fund launches. Where regulations do not drive the With over 80% compliance, Australian GAAP decision making, fund managers continue to ( AASB ) continues to be the regional place great attention on investor preferences. standard bearer, which aligns with their leading The choice of GAAP is still heavily correlated with performance set out in section III. Performance by overall compliance, as annual reports, including Geographic Mandate. While GAAP contribute to audited financial statements, play an integral part this performance, local regulations and disclosure in the investor reporting dialogue. Therefore, requirements also play a sizeable role. to shed some light on the relationship between GAAP and compliance with INREV Guidelines, we analyse participating funds performance by GAAP (in Chart 2 below). Chart 2 - Level of compliance by accounting standards adopted Overall Japan GAAP Late adopters: Japanese funds continue to lag behind funds across other geographic mandates partly due to its choice of GAAP (analysed in the section below), lower expectations of domestic investors and also because fund managers are still adapting to the requirements set out in the Guidelines. GAAP US GAAP Other IFRS Equivalent AASB IFRS 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Level of Compliance (%)

18 Looking at the year-on-year movements for IFRS and its equivalents, a significant difference was observed between new survey entrants and recurring funds, with the former group s overall compliance level sitting at 56%, whereas, the latter, i.e. recurring funds maintain their high overall compliance level of 72%. We expect that this gap will narrow considerably in the foreseeable future, as new funds restructure and refine their investor reports. Among recurring participant funds, IFRS-based funds still outperform their US GAAP peers, despite the 2% year-on-year improvement (to 64%) exhibited by the latter group. This continues to be driven by the fact that IFRS requires disclosures on principal risks, while US GAAP does not. The adoption of Investment Entity ( IE ) accounting under the revised IFRS 10 Consolidated Financial Statements standard continues to be a popular discussion topic. Funds adopting IE accounting are still vastly outnumbered by those consolidating, as investors believe consolidation provides a more complete picture of the fund. Contrary to this belief, results from this year s survey indicate that funds adopting IE accounting had overall compliance levels that were 11% greater than their consolidating peers. To gain further understanding of the areas and types of non-compliance, the assessment result for each of the individual sections of the current INREV Guidelines are presented next: 15

19 B. INREV guidelines module 2 - section results Chart 3 - Level of compliance module 2.1 (By guideline) 120% I. Fund documentation for reporting framework 100% Purpose: This section of the reporting module of the Guidelines, which include only two requirements, sets out the high-level basis for a fund s reporting framework, and whether a fund defines key terms included within the reports. Level of Compliance (%) 80% 60% 40% 20% Core Value Added Opportunity Overall Overall Compliance Level: 87% (Prior Year: 57%) 0% FD.19 FD.20 One to watch: INREV Guidelines INREV Guidelines Description Reference Does the fund documentation include the basis, the frequency FD 19 and timing of the preparation of the annual reports? 2016 Compliance % 2015 Compliance % 74% 37% INREV Guidelines Reference Our Top Tip for better compliance FD 19 It is suggested that fund managers make reference in their reporting (whether in their annual or quarterly reports, or webcasts, or calls), to this constitutive documentation where the basis of reporting is set out (i.e. LPA, PPM, etc.). For funds that have investor portals, with a reporting timeline section or webpage, similar references can be made with hyperlinks to relevant documents. Insights: Illustrated in the table, the overall increase in compliance level in this section is driven by compliance with FD 19, which has increased by 37 percentage points. Last year, a common observation across the region was that this information is often set out in a private placement memorandum ( PPM ), limited partnership agreement ( LPA ), and to a lesser extent, static pages in investor reporting portals. This year, many managers have taken our recommendation shared in private feedback sessions on including a link within periodic reporting directing to relevant static information. This will not only improve compliance with the requirement, but also serve to keep investors up-to-date on the expected reporting basis and timelines. 16

20 II. Content and frequency of reporting Purpose: Chart 4 - Level of compliance module 2.2 (By guideline) 120% This section of the reporting module of the Guidelines sets out what statements and items should be included within reports to investors, particularly the annual report. Overall Compliance level: 82% (Prior Year: 80%) One to watch: Level of Compliance (%) 100% 80% 60% 40% 20% Core Value Added Opportunity Overall INREV Guidelines INREV Guidelines Description Reference Does the annual report disclose the level of compliance with INREV guidelines on a module by module basis? This should include any relevant explanations, reconciliations and RG 7 calculations. Insights: Has management reviewed the above statement concerning the level of compliance with INREV Guidelines? 2016 Compliance % 2015 Compliance % 21% 9% 0% RG.1 RG.2 RG.3 RG.4 RG.7 INREV Guidelines Reference Our Top Tip for better compliance RG 7 While it is encouraged to comply with all modules of the INREV Guidelines, for a fund to be compliant with RG7, it simply needs to include in its reporting the degree it complies with the INREV Guidelines. Therefore, a fund s reporting would simply needs to state which modules they comply with, even if it the fund is non-compliant with certain modules. Furthermore, while fund managers are happy to disclose this information on an ad hoc basis, it is best practice for them to inform all investors, either in their periodic reporting, or other means (through webcasts, calls, etc.) that such information is available upon request. The above graph has visibly shown that the compliance with the RG 7 requirement continues to be the key factor of dragging the overall compliance level down. The key failing is the requirement to disclose the level of compliance with INREV guidelines on a module by module basis, as many managers either do not wish to confuse non-european investors or struggle to find an efficient way of disclosing such information. 17

21 III. General vehicle information, organisation and governance Purpose: This section of the reporting module of the Guidelines sets out the key underlying information of the fund and its organisation that should be circulated to investors. It includes both strategy-related information, and an explanation of both fund and vehicle level governance. Overall Compliance level: 66% (Prior Year: 67%) One to watch: INREV Guidelines INREV Guidelines Description Reference The level of adoption of INREV RG 14 corporate governance best practices? Insights: 2016 Compliance % 2015 Compliance % 13% 7% While compliance with this section did not change significantly from the prior year, it continues to be one of the lowest among the 8 sections. The two primary reasons for this are: 1. Static Information: Similar to last year, it is still preferable for fund managers to avoid producing reports with an overload of information, not wishing to repeat their corporate governance and organisational framework over and over in their periodic reporting. Examples of this is RG 12, which requires a discussion of fund governance frameworks, and the organisation of management and administration such as the use of independent directors and special committees and how they operate. Compliance with this guideline remains 67% for both 2015 and 2016, as many managers, including new participants, stated a preference for keeping their reporting focused, and not adding information contained in an offering document, unless it had changed. 2. Level of adoption of INREV corporate governance: Again, the requirement of disclosing the level of adoption of INREV corporate governance best practices (RG 14) aligns with the low scoring on other INREV-related rather than market related requirements. It is a requirement where compliance is driven by the origin of each fund s investors, as it is surveyed that European investors are particular requesters of such information. Chart 5 - Level of compliance module 2.3 (By guideline) Level of Compliance (%) 120% 100% 80% 60% 40% 20% 0% RG.10 RG.11 RG.12 RG.13 RG.14 RG.15 INREV Guidelines Reference Our Top Tip for better compliance RG 14 & 15 RG.16 RG.17 RG.18 Core Value Added Opportunity Overall As corporate governance is a fundamental part of a fund s operations, we would recommend that fund managers, should look to keep investors updated on an ongoing basis about the level of their fund s compliance with their own framework by sharing information periodically on board and committee discussions and resolutions. Furthermore, in assessing the fund s corporate governance against best practice, managers should look to use INREV s tool to perform a selfassessment against INREV s corporate governance framework: ( 18

22 IV. Capital structure and vehicle-level returns Purpose: This section of the reporting module of the Guidelines sets out the required disclosures fund managers would need to make in relation to a fund s capital structure, its movement (i.e. subscription/calls, redemptions/ distributions etc.), returns and the impact of fees on performance. Overall Compliance level: 80% (Prior Year: 86%) However, this year, the overall compliance level relatively dropped compared to last year. This has been illustrated in the above chart that the guidelines, namely RG 21, has comparatively under-performed, as we have noted a few managers new to the Survey have struggled to compare their key investor returns and related metrics against a target or benchmark/relevant index. This is especially a fact for opportunity funds as it is difficult for them to find relevant indexes or other meaningful comparisons. Chart 6 - Level of compliance module 2.4 (By guideline) One to watch: 120% 100% INREV Guidelines INREV Guidelines Description Reference Does the annual report summarise and comment on key investor returns and related RG 21 metrics including comparison with targets, benchmarks and relevant indices? 2016 Compliance % 2015 Compliance % 70% 64% Level of Compliance (%) 80% 60% 40% 20% 0% RG.19 RG.20 RG.21 RG.22 RG.23 RG.24 Core Value Added Opportunity Overall Insights: INREV Guidelines Reference Continuing last year s outstanding results, this section is still the one of top sections scored among the 8 sections. This is in line with what we would expect, as the guidelines in this section require disclosures that most funds would ordinarily presented in their annual audited financial statements. Our Top Tip for better compliance RG 21 For fund managers that are unable to determine an appropriate benchmark, or conclude that benchmarks such as those provided by ANREV and other bodies might not be as appropriate for their fund(s) in light of their specific strategy, they can consider incorporating performance against their internal target return into the fund s periodic reporting. 19

23 V. Manager s report Purpose: This section of the reporting module of the Guidelines sets out what information fund managers need to include in their reports, from the effects of macro-economic factors and significant events affecting the fund, to the fund s performance and fees. Overall Compliance level: 83% (Prior Year: 86%) One to watch: in their funds periodic reporting. In the case of RG.30, many fund managers raised their concern about the benefit of presenting five years of performance, as investors do have their reports period-by-period. Our view is that the presentation of current period performance against the last five years is more appropriate for core funds than value-added or opportunity funds, because core funds tend to generate a more stable and comparable income yearby-year. Value-added and opportunity funds, normally are closed-end, are typically assessed by their cumulative or projected IRR performance against other funds of their vintage rather than on a specific number of periods. Chart 7 - Level of compliance module 2.5 (By guideline) INREV Guidelines INREV Guidelines Description Reference Does the annual report discuss the current period performance RG 30 in the context of the last five years? Insights: 2016 Compliance % 2015 Compliance % 55% 63% Level of Compliance (%) 120% 100% 80% 60% 40% 20% Core Value Added Opportunity Overall This section obtained the highest overall compliance score again among all 8 sections. The requirements in this section are generally key disclosures either from an audited financial statements or periodic reporting, as information such as macro-economic factors, and a summary of significant events are crucial information to investors. Despite this strong overall compliance, there are still a few guidelines where participants did not perform particularly well. For RG 29, as with other sections, most fund managers did not include the INREV NAV 0% RG.25 RG.26 RG.27 RG.28 RG.29 RG.30 RG.31 RG.32 RG.33 RG.34 INREV Guidelines Reference 20

24 VI. Property report Purpose: This section of the reporting module of the Guidelines sets out what information fund managers should be including in their reporting, such as portfolio allocation and valuation, developments in rental and property value, concentration and occupancy of properties, and the impact of operating costs and capital expenditure on the fund. Overall Compliance level: 72% (Prior Year: 74%) One to watch: developments or any non-property investment, resulting in particular requirements being scoped out as not applicable. Highlighting RG. 48, in which the compliance level is relatively lower than other RGs in this section, the low score is due to the lack of commentary provided on the impact of specific factors on property operating costs and their relation to the vehicle s performance. Many fund managers have shared with us that such commentary is normally shared within other communication mediums, such as online webcasts, rather than explicitly published in black and white. Chart 8 - Level of compliance module 2.6 (By requirement) 120% 100% INREV Guidelines INREV Guidelines Description Reference If the operating costs are significant, does the annual report discuss the impact of specific factors such as service RG 48 charge recoveries, bad debt write-offs and other property operating costs related to fund s performance? 2016 Compliance % 2015 Compliance % 39% 43% Level of Compliance (%) 80% 60% 40% 20% 0% RG.35 RG.36 RG.37 RG.38 RG.39 RG.40 RG.41 RG.42 RG.43 RG.44 RG.45 RG.46 RG.47 RG.48 RG.49 RG.50 RG.51 RG.52 Core Value Added Opportunity Overall INREV Guidelines Reference Insights: The results for this section is fairly similar to last year, as property-related information are of crucial investor interest. In this year s survey, we have recognized that the compliance scoring correlates with each fund s stage in the life cycle, as many funds that had just launched, did not have any investment Our Top Tip for better compliance RG 48 The issue here is not one of compliance, but disclosure. As such fund managers should look to include a simple statement that such commentary is covered on online webcasts, instead of being discussed in the annual report. 21

25 VII. Risk management Purpose: This section of the reporting module of the INREV Guidelines sets out the organisation of the risk management function, the principal risks faced by the fund and vehicles, and the financing structure at both levels. Overall Compliance level: 71% (Prior Year: 70%) In other sections such as RG. 58 through RG. 61, the guideline on providing management commentary on both the fund and SPV s financing structure continue to lower many funds scoring. Fund managers continue to believe sharing comments through online webcast or phone calls are more personal, than including within periodic deliverables. Chart 9 - Level of compliance module 2.7 (By requirement) 120% One to watch: INREV Guidelines INREV Guidelines Description Reference Does the annual report describe the current level of compliance with risk management policies? RG 56 Does the annual report describe and comment on specific breaches and remedial plans? 2016 Compliance % 2015 Compliance % 45% 25% Level of Compliance (%) 100% 80% 60% 40% 20% 0% RG.54 RG.55 RG.56 RG.57 RG.58 RG.59 RG.60 RG.61 Core Value Added Opportunity Overall Insights: INREV Guidelines Reference Resembling other sections in the Guidelines, RG. 55 and RG.56 require fund managers to disclose risk management frameworks rather than current data. These are not typically disclosed in periodic reports as they believe that such static information is fully disclosed in the PPM or the LPA, and would only mention such information in their periodic reporting if there is a change in such framework, i.e. on an exception basis. Our Top Tip for better compliance RG 56 As with corporate governance, risk management is another fundamental part of a fund s operations, we would recommend that fund managers, where permitted to by their own legal and compliance, should look to keep investors updated on an ongoing basis about the level of the fund s compliance with its own risk management processes framework. 22

26 VIII. Other disclosures - INREV NAV & fee metrics Purpose: This section of the reporting module of the INREV Guidelines sets out other disclosure requirements, including the adoption of the INREV NAV and fee metrics, and any deviations from third party valuations made by fund managers. Overall Compliance level: 31% (Prior Year: 21%) One to watch: INREV Guidelines INREV Guidelines Description Reference Does the annual report include the following information in a table: TER before performance fees? FM 11 TER after performance fees? REER? Weighted average INREV NAV? Weighted average INREV GAV? Insights: 2016 Compliance % 2015 Compliance % 24% 17% This section is the most improved among all 8. This year, we have noted that whilst in the past survey contributing fund managers were aware of the INREV NAV, this year more have actually prepared the calculation. More managers have proactively issued their INREV NAV statements, unlike last year, where more fund managers only generated them upon investors requests. Nonetheless, the reporting of INREV ratios is still uncommon, where many managers only prepare ratios to meet specific investor requests and bespoke definitions. Fund managers once again intimated their appreciation for more guidance in the calculations of the ratios and on populating the INREV disclosures in their reporting. One fund manager suggested having a learning webcast or more ANREV seminars would be beneficial for all fund managers. Likewise, the requirement on positively disclosing any deviations by managers from valuations as determined by external property valuers (VAL. 15) is still a source of confusion for many fund managers, as most of them shared that they do not, by policy, conduct such overrides. Thus, managers continue to question the need to disclose such information. Chart 10 - Level of compliance module 2.8 (By guideline) Level of Compliance (%) 70% 60% 50% 40% 30% 20% 10% 0% VAL.15 NAV.3 FM.9 FM.10 FM.11 INREV Guidelines Reference Core Value Added Opportunity Overall 23

27 Section 3 SNAPSHOT 24

28 3.1 Environmental, social, governance and investor reporting The advancement of Environmental, Social, Governance ( ESG ) analysis and consideration by industry players here has been nothing short of staggering. In three short years, the conversations we have had have evolved to the point where participation in GRESB has gone from being an added consideration to being treated as a given, with most investors stipulating it, and other ESG related considerations, as a requirement before they commit. Presently, there s a push by investors for managers to now focus on how and where best to incorporate ESG as part of their operations and reporting. Following from this, the investor reporting conversation has also shifted to understand how best to communicate these ESG developments to investors and in what manner. It was from these discussions, and greater regulations in the European Union that the INREV Sustainability Reporting Guidelines were developed, and launched in April Given the short window between the launch of the Sustainability Reporting Guidelines, and our interviews, most managers that we met with were not too familiar with these guidelines. Therefore, before exploring the overall trends around the region, we first take a closer look at the requirements of the guidelines and how some fund managers are incorporating them into their investor reporting. A. INREV sustainability reporting guidelines The Sustainability Reporting Guidelines were developed to provide meaningful data to increase visibility and insight to investors into a vehicle s ESG efforts and its plan of action. In providing a coherent framework for ESG reporting, the Sustainability Reporting Guidelines act as an information bridge for fund managers, to link up their annual reporting with their ESG policies, and its underlying business models. This was done with the thinking that sustainability should be viewed in the context of a fund s overall strategy and performance, with annual objectives, targets, and KPIs defined for implementation and monitoring. Given the range in progress that different funds have on the ESG implementation curve, the Sustainability Reporting Guidelines offers fund managers the ability to tailor the level of detail and to customise the ESG reporting based on their capabilities and specific investor needs, by incorporating a set of 7 mandatory sustainability reporting requirements and 4 best practice recommendations (for those that want to take their ESG reporting to the next level). At present, most fund managers do not implement any fund level policies, but instead adopt such policies at the fund manager or its wider group corporate level. Some managers do go one level further, by implementing asset-level ESG policies that, depending on strategy relate to either each property s development, or their plans to retrofit, enhance or monitor the asset. Many fund managers have expressed a willingness to take a look at the Sustainability Reporting Guidelines. However, given the number of submissions being made by fund managers to GRESB, Global Reporting Initiative ( GRI ), or the United Nations Principles of Responsible Investment ( UN PRI ), the addition of the Sustainability Reporting Guidelines to the mix has raised questions about the purpose of each set of reporting, and particularly where they overlap, or even contradict. 25

29 Recognising that each of these bodies are tackling ESG transparency from a different angle, the Sustainability Reporting Guidelines have been designed to not create an additional layer of reporting, but to leverage current industry reporting standards that are widely adopted, with each of the guidelines and best practices set out in the Sustainability Reporting Guidelines being particularly relevant for real estate funds, and having corresponding references to the Guidelines, GRESB requirements, GRI requirements, and EPRA requirements. This would ease their implementation and provide a consistent basis of reporting with these various initiatives. As highlighted by a member of another industry body: We recognise the need to create alignment in the industry, and are working closely with other real estate industry bodies, including ANREV, in order to make this happen. From an investor perspective, they are also on board with the need for greater alignment, and the role that investors must play in driving such alignment forward, with one stating: I believe that reporting is only effective if it bridges the information asymmetry between principals (investors) and agents (fund managers). Principals should be in the driver s seat to harmonize standards as much as possible if they want to achieve comparable reporting across the region(s). Agents and service providers can help them achieve that. In order to facilitate the implementation of the Sustainability Reporting Guidelines, and to give the region an idea of what best practice would look like, ANREV are in the process of working with a fund manager to create a set of Sustainability Reporting Guidelines compliant illustrative disclosures. B. ESG around the region While the Sustainability Reporting Guidelines have not been incorporated in this year s scoring assessment, there were fund managers that were already leading the way. Of the funds that participated in this year s review, just over onethird (37.5%) have incorporated ESG at some level in their reporting, and as such we thought it would be best to set out, in the table below, what level is presently being disclosed. 26

30 Table 4 - Participating Funds ESG Disclosure Levels Geographic Mandate ESG Section in Report ESG Reporting Level Strategy Targets Benchmarks Australia Y Fund & Investment Y Y Y Australia Y Fund & Investment Y Y Y Australia Y Fund & Investment Y Y Y Australia Y Fund Y Y Y Australia Y Fund & Investment Y Y Y Australia Y Fund & Investment Y Y Y Australia Y Fund & Investment & Corporate Y Y Y Multi-country Y Fund & Investment Y N N Multi-country Y Fund & Investment Y Y N Multi-country Y Fund Y Y Y Multi-country Y Fund Y N N Multi-country Y Corporate & Fund Y Y N Other Y Fund Y N N Other Y Corporate N N N Other Y Corporate N N N Note: Corporate ESG reporting here signifies instances where participating funds have made reference to practices that are adopted at the parent/hq corporate level. 27

31 From the table above, most of this subset of the responding population are Australian and Multi- Country funds, which does not come as a surprise, as the former have been incorporating such disclosures for a number of years, while the latter group include regional managers that are part of global managers, with overarching ESG policies. When looking at the level of disclosure, there does seem to be a clear difference in the respective level of detail which funds go into, with the Australians leading the way by disclosing both fund and investment level targets, benchmarks, and KPIs, while the rest of their peers in the region currently disclose information at the Corporate or Fund level. This finding mirrors Asia- Pacific s performance in the latest GRESB survey when compared to Australia, highlighting the fact that the Australian funds have been looking at ESG holistically, and implementing it at every level, while the rest of the region is still in the early stages of putting their policies in place, before taking a closer look at implementation. Fund managers in the rest of the region recognise this with one summing up their view as follows: For a while now we have been good Green Talkers, but now it is time for us to walk the talk. C. Looking ahead When discussing ESG s opportunities, and challenges with managers and investors across the region, there were a range of views about how ESG would develop in the region, though there was a consensus among managers that an investor-driven push could only take it so far, and that the government regulation or tax incentives might be the next catalyst needed in pushing its implementation, with an investor stating: The question is does government legislation need to be in place to promote ESG? While it is evident that Australia leads the region, in large part due to the implementation of brown taxes and a national environmental performance rating system (NABERS), the question is who the next movers are likely to be. Looking at the latest developments in each of the key jurisdictions in the region, and the location of unlisted real estate fund managers, two locations come to the fore: Singapore and Hong Kong. Both jurisdictions have mandated ESG disclosures for listed entities, and that any push for such disclosure would likely permeate to unlisted entities, including funds. Singapore, for its part, has opted to go with an incentives-based model to drive fund managers and the wider market to implement more environmentally friendly building designs. In order to promote the local BCA Green mark rating scheme, buildings achieving gold or platinum ratings and having achieved a certain standard of energy efficiency would be in line to receive significant incentives that include a mix of Gross Floor Area ( GFA ) concessions and cash incentives for capital investments. Local managers stated that these incentives were attractive as they would not have to wait for the expected savings to be realised. In Hong Kong, the Beam Plus rating scheme is widely known and recognised, with buildings achieving certification receiving GFA concessions. Beyond this, a locally based sustainability consultant noted that the government has been actively working with the property sector to promote ESG. The consultant also shared its view that a brown tax would not fit into Hong Kong s current preference of not increasing tax burdens. Instead, they believed that to incentivize developers who do not currently benefit from the savings arising from retrofitting, a fund similar to the BCA s for capital investments would push the agenda a great deal. However, in light of the current political situation, they did share that a tax incentive scheme might end up being a more amenable solution. 28

32 As both jurisdictions push ESG generally and specifically target the real estate industry, it is almost inevitable that reporting will follow suit, especially as developers and managers take advantage of the various schemes in place. For those managers that conclude that such certification and reporting may not be possible, there is hope, as one investor weighed in by saying: We are not necessarily fixated on ensuring our managers get certifications for each of their buildings. Instead, what we are more concerned about is the manager showing they have assessed the existing state of the building and made retrofits that also deliver value. 3.2 Cyber security The pervasiveness of technology transformation within investor reporting was set out earlier, with more and more managers using data rooms/ portals and webcasts to replace paper files, CDs, and traditional quarterly calls. In light of the fact that more and more sensitive information is shared digitally, the risk of data breaches and theft has also grown, not just of fund information, but also of investor information held in a manager s internal systems. Investors in the region are acutely aware of this risk, and have invariably asked fund managers as part of their due diligence process what data management and security policies they have in place, and whether fund managers had recently conducted any penetration testing. Well, the first thing you should know about us is that we are everywhere, with global investors as well. Ensuring access to data securely is the key for us. - A large manager sharing their data management philosophy Fund managers have been focused on beefing up their security for a while now, and are increasingly looking to secure their data, through encrypted portals set up on in-house servers, or through secure third party solutions (e.g. Intralinks, Navitar, Yardi). The choice of staying in-house versus outsourcing though does not always rest entirely in the manager s hands, as a fund manager based in Singapore intimated that the local regulator is averse to cloud solutions, which was the manager s preferred solution, given the regulator s concerns around the security of investor information. As such, almost all data solutions are in-house. For any cloud solutions that would be adopted, Singaporean-based managers have a long checklist that needs to be completed as part of the selection process. On the other end of the spectrum, bypassing stories of a couple of investors still insisting on hard copy documents being delivered to them, some managers stated that despite the concerns around data security, they wanted to ensure that investors were able to quickly access their reports, so attaching them to an , while seen as possibly outdated, would save investors the trouble of jumping through two-factor authentications, and fumbling with passwords, giving investors a chance to access reporting on the go, even through their smart phones. Overall, fund managers in the region were comfortable with the combination of reporting mediums that was adopted, where most chose to make the reporting available on web portals/ by , complemented by quarterly investor calls, and annual in-person meetings or investor conferences. At the end of the day, there are no right or wrong answers in this debate of security vs. convenience; just that risks to be managed. 29

33 Section 4 TAKING THE VIEW IN 30

34 Conclusions and next steps A. Conclusions Having concluded another successful and highly engaging review process, it is evident that the managers in the region are happy with their core reporting practices. Having satisfied investors in core reporting areas, managers are now honing their reporting game in operational matters and ESG strategy, targets, and benchmarks. With the breadth of information being communicated, effective reporting is fast become a mantra being chanted across the region. This desire to streamline reporting was most evident when it came to ESG reporting, where managers were keen to find the one set of guidelines that could unite the others, and be used as the gold standard, driving their reporting. Coupling with this drive to streamline reporting, is a push for consistency in reporting standards across the globe, as larger investors require managers from San Francisco to Sydney to provide them with the same breadth, depth and format of information. Following on from this, the creation and implementation of global guidelines continues to gather pace, as ANREV, INREV, NCREIF and PREA, continue to push for harmonisation. Aside from this, it is evident that managers and investors in the region are becoming more sophisticated in their use of technology, and are considering more secure solutions than . Despite this, a fork in the road has emerged with some managers and investors favouring greater security, while others favouring greater convenience (via ). Each manager ultimately should look for a solution that can be mutually agreed with investors. B. Next steps Following the launch of the INREV Sustainability Guidelines, it is clear that INREV and ANREV are closely following the pulse of the industry at large, having recognised the need to channel fund managers disclosure of their ESG strategy and implementation. ANREV is presently working with INREV on refining the Guidelines, attribution between different fund styles, presented within an active web-based platform, designed to be tailored to suit all types of funds. In addition to this, with many participants asking for greater guidance on the Global Guidelines, SRG, and changes to the Guidelines, there will be a need for more seminars and webcasts to get the region up-to-speed. Furthermore, to enhance implementation, there would be a need to set out illustrative disclosures that would link the RGs to illustrative disclosures to give managers an idea of what best practice looks like. These developments would bode well for the progression of fund investor reporting, as fund managers in the region continue to evolve their practices. 31

35 APPENDIX 1 REVIEW FRAMEWORK AND APPROACH 32

36 Purpose of this research The objective of this review is to provide insights into current market practices of investor reporting across non-listed real estate funds investing in Asia-Pacific, especially the degree to which existing reporting complies with the requirements and recommendations of the INREV Guidelines. We hope that the results of this review will help ANREV support the promotion of best practices within the region, and globally, in several ways: We hope to give ANREV and its members insights into the level of compliance with the INREV Guidelines by the industry in the region, and provide detailed feedback to each participant on how their funds compare to their peers; The information gathered and outcome of the research can be used as input to update the INREV Guidelines, which are by necessity continually adapting with market needs. It is intended that the results will form part of ANREV s work to understand any regional and fund strategy variations in the adoption of the Guidelines, which were originally developed for the European market. This will serve the industry and the region well, given ANREV s efforts in creating Global Guidelines, with INREV, NCREIF, and PREA. Review approach The review focused on if each fund s individual array of investor reporting together complies with the relevant parts of the INREV Guidelines. Investor reporting across managers varies substantially, but typically comprises an annual report and quarterly reporting, but often also includes related investor call presentations or webcasts, reporting submissions similar to the SDDS additional reporting for certain investors, such as the INREV NAV, and other ad hoc reporting. Due to the volume of reporting packages, and getting fund managers to review the requirements in detail, each participant was requested to fill in a self-assessment, including a cross reference to where each reporting requirement was fulfilled. Each complete set of reports, along with the self-assessment, where produced, have been analysed independently using a questionnaire tailored by PwC for this purpose, but based on the INREV gap compliance checklist which is part of the Adoption and Compliance framework of the INREV Guidelines ( As was the case in prior reviews, we continue to see more managers placing certain material onto real-time Investor reporting or due diligence web portals, rather than including such information within documents to be periodically circulated. Information provided within the portals have only been treated as being compliant where we have been able to ascertain that they are used as a primary interface to report information required by the Guidelines, with the content reported to investors being made readily available and updated on a periodic basis. Results from the review of 2015/2016 investor reports have been determined based on a scoring scheme which reflects disclosures within each section of the Reporting module of the 2014 INREV Guidelines, being Fund Documentation, Content and Frequency of Reporting, General Vehicle Information and Governance, Capital Structure and Vehicle-level Returns, the Manager s Report, the Property Report, Risk Management and the INREV NAV and Fee Metrics. Such a scoring scheme did not take into account the non-disclosure related interim reporting and fee metric guidelines, as they were not relevant to the reporting process. The INREV Sustainability Reporting Guidelines, owing to their launch after the reporting cycle in April 2016, were also not included so as to have a consistent methodology as prior reviews. 33

37 The review has been performed as a quantitative research study in which the degree of adoption is determined based on scores for each of the requirements and recommendations within the Guidelines. Where possible, the review takes into account qualitative factors to help distinguish between different degrees of adoption for certain guidelines. This approach is intended to ensure a high level of consistency and fairness across the funds that continue to participate in the review, and those that are new participants. The review was primarily carried out between June and September 2016 and comprised the following steps for each fund: The reports were reviewed by the PwC project team, who completed a compliance assessment against INREV Guidelines; Where applicable, results from the PwC compliance assessment was compared to the self-assessment prepared by the fund manager; Fund managers were given individual feedback for their funds. This comprised their preliminary compliance scores, both on an overall basis and against their strategy peers, and recommendations were provided on areas of improvement for specific requirements within the revised INREV Guidelines; Fund managers delivered their primary investor reporting documents, for example, the fund s annual report, Q or Q report, and any other applicable documents or investor presentations to PwC, together with a compliance self-assessment; A physical meeting or conference call was scheduled to discuss the findings, comparisons to peers, fund manager views on reporting in general, and how improvements could be implemented to their reporting in a practical way. 34

38 Review targeted population and respondents A. Respondent Funds: ANREV sent requests to 75 fund managers to participate in this survey, based on the ANREV member base, of which responses from 26 (2015 survey: 28) fund managers were received by PwC, with reporting covering 40 funds. It is encouraging to see that the number of funds reviewed, and of participating fund managers continues to be significant and representative of Asia-Pacific fund managers, reflecting the focus on investor relations, and of the wider interest and adoption of the INREV Guidelines. The following tables show the breakdown of respondents for the 2016 study by fund style, structure and country strategy, with 2015 s respondents in brackets for comparison purposes. Table 5 - Respondents by fund style and strategy Fund style/structure Single country Australia China Japan Others 3 Multi-country Total Core (open-ended) 6 (11) 0 (0) 1 (1) 0 (1) 0 (3) 9 (16) Core (closed-ended) 0 (0) 0 (0) 0 (1) 1 (0) 0 (1) 1 (2) Value-Added (open-ended) 1 (0) 0 (0) 0 (0) 0 (0) 1 (1) 2 (1) Value-Added (closed-ended) 0 (0) 1 (2) 3 (2) 1 (1) 4 (4) 9 (9) Opportunity (open-ended) 0 (0) 0 (0) 0 (0) 0 (0) 1 (1) 1 (1) Opportunity (closed-ended) 0 (0) 4 (3) 2 (3) 1 (2) 11 (10) 18 (18) Total 7 (11) 5 (5) 6 (7) 3 (4) 19 (20) 40 (47) * ( ) as 2015 figures 3 Other single country funds include funds investing in India and Korea. 35

39 B. Respondent fund managers: Of the participating fund managers, it was not surprising that a significant proportion continue to manage opportunity funds. However, as shown in Chart 6, it is worth noting that for the third year running, responding fund managers are clearly diverse. It is this diversity that continues to make the results of the survey relevant across different styles, and not skewed by a particular group of funds/fund managers. As demonstrated by Chart 7, there is a good degree of consistency in the population of respondent fund managers, with more than three quarters of fund managers of the 2016 survey being recurring participants. This emphasizes the commitment most participants place to investor reporting. Furthermore, the recurring nature of most participating fund managers has allowed for a more robust analysis of the year-on-year changes in fund performance, as well as deeper discussions about the changes and challenges they encounter in their investor reporting. Interviews were also conducted with three investors, to obtain their views on research output and the general themes coming out of our meetings or calls with fund managers. In addition to this, interviews were also conducted with four service providers, including one external valuer, two ESG consultants, and one IT and data services provider to get their perspective on the general themes generating from our discussion on investor reporting. Chart 11 - Responding fund managers by fund style Chart 12 - Responding fund managers by participation history 48% FY % 41% FY % Core Value added Opportunity 19% FY % FY 2015 Recurring New 27% 81% 69% 21% 36

40 APPENDIX 2 DETAILED COMPLIANCE RESULTS 37

41 INREV Guidelines Level of compliance Module 2 Reporting FY 0%-25% 25%-50% 50%-75% 75%-100% Total Reviewed Sections No. of funds % No. of funds % No. of funds % No. of funds % No. of funds % Fund documentation for reporting framework Content and frequency of reporting General vehicle information, organisation and governance Capital structure and vehicle-level returns Manager s Report Property Report Risk Management Others disclosure requirement Overall % 11 28% 3 8% 23 58% % % 8 17% 5 11% 19 40% % % 5 13% 34 85% % % 4 9% 42 89% % % 13 33% 18 45% % % 18 39% 19 40% % % 3 8% 5 13% 29 73% % % 7 15% 36 76% % % 3 8% 4 10% 32 80% % % 4 9% 41 87% % % 7 18% 6 15% 24 60% % % 2 4% 14 30% 28 60% % % 8 20% 8 20% 20 50% % % 7 15% 20 43% 18 38% % % 6 15% 1 3% 8 20% % % 11 23% 2 4% 3 6% % % 13 33% 20 50% % % 29 61% 14 30% % 38

42 SPONSORING ORGANISATIONS 39

43 SPONSORING ORGANISATIONS PwC s Real Estate practice assists real estate investment advisers, investment trusts, public and private investors, corporations, and management funds in developing strategies, evaluating acquisitions and dispositions; and appraising and valuing real estate. Its global network of dedicated real estate professionals enables it to assemble for its clients the most qualified and appropriate team of specialists in the areas of capital markets, systems analysis and implementation, research, accounting, and tax. PwC has offices in 157 countries and more than 208,000 people globally, and is among the leading professional services networks in the world. PwC Hong Kong Editorial Team: Paul Walters Jayesh Peswani Hannah Routh (ESG) Global and Regional Real Estate Contacts: Craig Hughes Global Real Estate Leader London, United Kingdom craig.o.hughes@uk.pwc.com Paul Walters Asia-Pacific Real Estate Assurance Leader Hong Kong, China paul.walters@hk.pwc.com K.K. So Asia-Pacific Real Estate Leader Hong Kong, China kk.so@hk.pwc.com ANREV is the Asian Association for Investors in Non- listed Real Estate Vehicles Limited. ANREV is a not-for-profit organisation driven by institutional investors in Asian non-listed property funds. Our aim is to serve as a platform for investors who guide the association s strategy. ANREV s agenda is driven by its members, in particular institutional investors, and is focused on improving transparency and accessibility through market information, professionalism and best practice. Fund managers, investment banks and advisors provide support in addressing key issues facing the Asian non-listed real estate fund markets. ANREV now has over 200 member companies from 18 countries. ANREV Contributors: Amélie Delaunay, Director, Research and Professional Standards, ANREV PwC Hong Kong Research Team: Stanley Tam, Fiona Chan, Alison Ip, Timothy Yu, Sav Gunasegaran, Linda Cheung and Jonathan Kim ANREV Research Team: Henry Lam, Vivian Leung 40