Made to Measure

INREV’s new Performance Measurement Module is already helping create greater global alignment for fund managers.

The new Performance Measurement Module developed by INREV is now ready to be implemented, with the aim of harmonising the way the industry measures performance and creating greater alignment between managers in different parts of the world.

This would be of assistance to both limited partners and general partners helping LPs differentiate between  GPs in terms of performance; and also allowing GPs to provide the key information to LPs to allow them to be benchmarked against their peers, both in their own region and beyond.

The module was developed by a working group from the INREV Performance Measurement and Benchmarking Committee, assisted by a series of consultation meetings and discussions with members and non-members.

This is the first time there has ever been a performance measurement standard for non-listed real estate funds in Europe. ‘This is really important - the whole industry is about performance, so we needed to give people a way to make sure they were comparing apples with apples,’ says Maurits Cammeraat, Director of Professional Standards at INREV.

‘It will help fund managers in that they will be able to show how they calculate income return, or other metrics. And this in turn will help LPs as they will know that they can compare funds because they are using the same calculation metrics.’

The module feeds into the existing structure of the INREV Guidelines, alongside modules on issues such as corporate governance, property valuation and liquidity.

Chris Portlock, Director of Performance Management at Invesco Real Estate and a member of the Performance Measurement and Benchmarking Committee, encourages all INREV members to look at utilising the module. ’It should remove much of the ambiguity that currently exists around performance measurement and performance reporting,’ he says. ‘This will be achieved partly through the establishment of a clear set of metrics to be calculated for all funds, and also through the provision of a standardised calculation methodology for these metrics, to facilitate accurate comparison between funds.

‘And this in turn should promote further analysis into what drives these headline metrics, particularly the performance differentials, improving understanding of the link between investment decisions and performance outcomes.’

The whole industry is about performance, so we needed to give people a way to make sure they were comparing apples with apples.

Renaud Breyer, Executive Director of Financial Accounting, Advisory & Reporting Services at EY, who supported the working group, adds: ‘The new performance measures guidance will bring consistency in the methodology used by managers to compute performance measures. These have been designed to be simple and easy to understand by preparers, and particularly reporting teams.’

With the increasing globalisation of the real estate industry in mind, the module has been designed to not only increase standardisation among managers in Europe, but also to harmonise Europe with the rest of the world.

The module has been based on the Global Investment Performance Standards (GIPS), and designed to dovetail with the guidelines put forward by NCREIF PREA Reporting Standards in the US. They will also be available for ANREV members in Asia to utilise due to the licence agreement.

In terms of how the industry can work together to create  the global alignment which would be beneficial for both  fund managers and investors, Portlock says: ‘European alignment is a step on the way to global alignment. The module has deliberately been drafted so that it does not contradict existing global standards such as GIPS. While this is not the same as saying that it is already globally consistent, it will promote European consistency and trying to reconcile global differences against a single European standard is naturally easier than trying to do so against several standards.’

Breyer adds: ‘Using [the module] will result in an increase of expectations on the level of granularity provided in ratios and will certainly encourage for the computation for property and asset level measures as well as gross measures. These two levels of computation will be a key step towards alignment with NCREIF PREA Reporting Standards.’

‘We’ve had good buy in from investors and fund managers, who are already starting to refer to the module,’ says Cammeraat. ‘We will collect feedback over the next year and work out what the challenges are and what we need to adjust.’

INREV members will also have the opportunity to learn about and discuss the module through the INREV performance measurement course and future webinars.

Beyond this Cammeraat says that the next step will be to incorporate a risk measurement module into the Performance Measurement Guidelines.

’People should always talk about performance and risk in the same breath, so it is the obvious next step,’ he says. ‘It will be good to have a way to objectify this so investors can have a way to measure how much risk they are taking. This is something already offered by NCREIF PREA Reporting Standards, but in the US it is easier as it is more of a single market. How do you compare the risk of a fund that invests in Spain against one that invests in the UK? That is the challenge for us.’