A single recipe for AUM anywhere in the world

Assets Under Management (AUM) is a key metric for real estate fund and asset managers when promoting their activities and track records. It also serves investors looking to access real estate through non-listed vehicles.

In broad terms, AUM refers to the market value of real estate in a vehicle or mandate as well as any non-real estate assets, including any cash. These amounts can be summed across the vehicles that a company manages to show the scale of its business in this area.

In May 2023, INREV, ANREV, NCREIF and PREA agreed on a global definition for calculating AUM. This was the end product of the collaboration between the four associations since 2021, to understand the different ways AUM was being calculated globally and to move towards a common standard.

The new definition mainly focuses on the use of fair value and the treatment of leverage in calculating AUM, but it also indicates how to deal with holdings in external vehicles and investor commitments that are yet to be drawn (often known as ‘dry powder’).

One of the industry experts involved in developing the global AUM definition was Andrew Muscat, Global Head of Investor Accounting and Finance at LaSalle Investment Management. As a former member of the INREV Reporting Committee, he was part of the global task force that developed the new standard. In his day job, he has overall responsibility for the accounting and finance function of LaSalle’s funds and other mandates.

He explains to INREV IQ that the initiative was undertaken in response to the growing need for greater transparency and consistency in reporting AUM across the industry.

‘The motivation behind the development of a global AUM definition by INREV, ANREV, NCREIF and PREA was to address the lack of consistency in reporting methodologies used by different fund managers,’ he says. ‘Without a consistent methodology for measuring AUM across the market, the values reported can vary greatly from one fund manager to the next. This makes it difficult for investors to compare managers and increases the risk of misunderstandings. Adopting an industry-standard measure of AUM resolves these issues and increases transparency when reporting to investors.’

He goes on to say that LaSalle attaches considerable importance to AUM as a key metric in its operations and in supporting its business growth. ‘AUM is used for various purposes within the company including regular reporting to existing investors,’ he says, ‘but it is primarily used as an important metric when speaking to prospective investors as part of the firm’s capital raising activities. It is also used by our parent company, JLL, in their investor reporting.’

Some may be concerned that adopting a new standard for such an important metric could mean big upheavals for an organisation’s processes. However, Muscat says that implementing the new AUM definition has proved to be relatively straightforward for LaSalle. ‘The information required to report under the new AUM methodology was already available,’ he notes, ‘so adopting the change has not caused any significant disruption to our practices.’

But for any manager, the most important consideration is likely to be the benefits that taking this kind of step can bring. In this regard, Muscat had no doubt that the gains justify any minor inconvenience in making the switch:

‘The adoption of the global AUM definition has helped us at LaSalle to enhance the transparency of our AUM communication with investors and other stakeholders and to do this in a more uniform way,’ he explains. ‘It has also strengthened our ability to meet investor demands for greater transparency and comparability across the industry. The new definition makes it easier to report our AUM to our investors, in part by removing the need to outline the methodology each time we report AUM.’

Indeed, the potential benefits are now starting to be understood right across the non-listed real estate industry, not least among investors. ‘Investors have shown strong support for the use of a standardised AUM definition,’ enthuses Muscat. ‘They recognise the importance of consistency in reporting, as it allows for better comparisons between managers. The industry-standard AUM measurement is seen as a positive step towards meeting these investor expectations.’