October 26, 2016
Interviewed by: Privcap
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A New Paradigm for Reporting Fees and Expenses

The SEC is turning its sights on the real estate sector in regard to the reporting of investment-level and fund-level fees and expenses. What are the compliance and operational challenges facing real estate GPs and what best practices are being adopted in the industry? How do LPs view the fee reporting issue?

Key Topics to be discussed:

Financial reporting and operational issues
Conflicts of interest
Joint venture and co-investment relationships
Compliance and controls
Recent SEC focus and activity
SEC proposed rules and regulations

The SEC is turning its sights on the real estate sector in regard to the reporting of investment-level and fund-level fees and expenses. What are the compliance and operational challenges facing real estate GPs and what best practices are being adopted in the industry? How do LPs view the fee reporting issue?

Key Topics to be discussed:

Financial reporting and operational issues
Conflicts of interest
Joint venture and co-investment relationships
Compliance and controls
Recent SEC focus and activity
SEC proposed rules and regulations

A New Paradigm for Reporting Fees and Expenses

David Snow, Privcap: Good morning. This is David Snow, CEO and Co-Founder of Privcap, and thank you for joining a Privcap webinar this morning. We’re going to be hearing all about a new paradigm for reporting fees and expenses. We have a panel of experts joining us today who are going to guide us through this critical topic – rather complicated topic – but I can tell you that having done a planning call with them, they are really good at explaining what is a fairly complex topic and making it really accessible to practitioners such as yourselves.

Before we get started, I’m going to ask each of our experts to briefly introduce themselves. And let’s start with Amy Boyle, the CFO of GTIS.

Amy Boyle, GTIS Partners: Good morning, everybody. My name is Amy Boyle, I’m the Chief Compliance and the Chief Financial Officer at GTIS Partners. GTIS Partners manages about $3.5 billion of real estate assets. Our assets are pretty much split 50% in Brazil and 50% in the United States. And we are a registered investment advisor, and have been since 2011.

Snow: Excellent, and why don’t we hear from Lindsey Simon, the founder of Simon Compliance.

Lindsey Simon, Simon Compliance: Sure, my name’s Lindsey Simon. I work just in this field doing securities compliance for real estate firms, private equity firms, hedge funds and registered investment advisors. I was formerly a senior attorney at the Securities and Exchange Commission in the Division of Enforcement. And I was also, after that, in-house as a CCO myself and general counsel at a Citadel spinoff in Chicago. And I’m an attorney, but I’m practicing in a different capacity in this role.

Snow: Thank you, we’d now like to hear from Tom Green, a partner at RSM.

Tom Green, RSM US LLP: Good morning. My name is Tom Green, I am the National Real Estate Assurance Leader for RSM US LLP. And RSM is the fifth largest accounting and consulting firm in North America.

Snow: Excellent. Well before we get started, just a couple quick items of housekeeping from me. This webinar is going to be about 45 minutes. We are not going to take any live Q&A from the audience, but if you do have questions, our experts may be able to answer them after the webinar is over – and answer them directly to you. So you can use the Q&A function that you’ll see here on the webinar module. I’d also like to let you know that this webinar will be available after the webinar is over – both as a playback and also eventually as a report produced by Privcap that will be available to all Privcap audience members.

Another quick note about this session – this presentation contains general information. It may be based on authorities that are subject to change, and is not a substitute for professional advice or services. It doesn’t not constitute audit, tax, consulting, business, financial, investment, legal or other professional advice and you should consult a qualified professional advisor before taking any action based on the information discussed.

Well let’s get started. Why don’t we set the stage a bit and maybe I can throw the first question over to Amy. Talk about why is it that the SEC, and also increasingly sophisticated institutional investors, are so focused on fees and expenses. How did we get to where we are now?

Boyle: I think – I mean, obviously I can’t speak for the SEC, but from an asset manager perspective and somebody who spends a lot of time with our LPs and constantly thinking about disclosure to LPs and stuff, obviously the SEC’s major focus is on disclosure and making sure that limited partners – regardless of how sophisticated they are or not – understand exactly what they’re paying the manager or exactly what fees and expenses are absorbed by funds or even entities below the funds at joint ventures and other entities within any of the fund structures.

I think that it’s a hot topic on their radar also because it’s quantifiable as well. They want people to know what they’re paying, and it’s easier for them to understand this issue, in my opinion. And I think it all gets down to disclosure. It gets down to disclosure as to what people – investors – are paying when you’re marketing a fund to them as well as when you’re issuing your financial statements to them and just providing that clarity so that LPs can also compare your funds to other funds. I think that’s also important to them.

Simon: I think to add on that, what’s interesting is that disclosure – when you talk about disclosure, Amy, is that the disclosure – has changed in recent years so that LPAs are now becoming more detailed in terms of what that disclosure is for fees and expenses. And a lot of these documents are obviously supposed to be lived in, or lived with, for anywhere from seven to ten years. And so the SEC, when they started registering private funds – especially real estate and private equity funds – in 2012, was not really understanding the difference in the type of disclosures. And so now that they understand private equity and real estate so well, I think that they’re looking and seeing that there is a disconnect between what the documents are showing and then what the operations are, and what is actually being charged through.

Green: Yeah, and then to just add on that. I mean, the one thing that we’ve seen with these real estate structures is that they’ve gotten much larger and a lot more complex. So the opportunity for just unintentional conflicts of interest to occur through related-party arrangements – whether it’s asset management fees or other fees at the joint venture level – have become heightened.

Snow: Quick question for anyone before we move on. Without naming names, as you observe what’s going on in the market, what evidence is there that the SEC is really taking this seriously or that – let’s say – very influential institutional investors are really taking this seriously? Any anecdotes or behind-the-scenes observations that you can share?

Boyle: Well I think the SEC has been very vocal on this point, publicly. As the compliance officer here, I attend many conferences with other officers to see what’s going on in the industry. And I actually tend to go to a lot of the private equity ones before I go to the real estate ones, because things seem to happen there before they trickle over to our world. And the SEC’s been very vocal at a lot of these conferences. They haven’t been quiet as to what they’re hot topics are, and this is one of them. There’s also been a lot of talk among the LPs in terms of fees and expenses and understanding how to compare funds and see what’s market based on templates they’ve been putting out and stuff like that. So I think it’s been pretty clear, obviously in cases as well, that the SEC has issued that you’ll get IC internals from different law firms or groups like Simon Compliance that send us blasts on new cases. It’s pretty clear that this is their focus.

Simon: They’re also – I’m sure you guys all who are listening have seen that there have been three big cases just in the past couple of weeks that involve fees and expenses at private equity firms – so Apollo, WL Ross and First Reserve just in the past couple of weeks. So David, to your question, just looking at the SEC’s enforcement actions or settled actions is also a good place to see where they’re heading with this.

Snow: Lindsey and Tom, you have private equity and real estate fund clients who probably have many questions about fees and expenses. Are there any misperceptions among these managers about how it is they arrive at a sense of compliance and a clean bill of health as you have been interacting with them on this topic?

Simon: Oh, I’m sorry Tom. Go ahead.

Green: No, I was going to offer that I think that maybe just one of the – in general one of the – misperceptions is that if a fund is getting audited, that will include certain tests around fees and expenses. But from an audit standpoint, that is not the primary focus. So there’s certainly, with any audit, there is a consideration around fees and expenses as they relate to related parties and/or they are shared or allocated across multiple entities. But the audit itself will not confirm that the fees and expenses are totally correct.

Simon: And I can’t stress that enough, because when I ask my clients – or mostly my new clients – if they’ve done any testing to review anywhere from 15 to 20 topics within the expense allocation bucket, they often like to tell me that their auditors have signed off because their audit was an unqualified opinion, which as Tom has just said, is not the same. So I think that there is – and Amy is a great example of someone that can speak to doing this in a really thorough and proactive way, but performing forensic testing on a regular basis on your expense allocations and your fee calculations is something that Tom and other auditors love for you to do. But it’s not something that they are doing as part of their audit.

Boyle: Right, and just to add that – this is Amy speaking – I think the SEC has also made it very clear that their materiality threshold is quite different than from an auditor’s perspective. If you ask the SEC what material means, they’ll tell you that it’s anything that they think an investor would want to know. And I think we would all probably agree, if you asked any investor would you want to know this, obviously they’re going to say yes which I can’t blame them for. So the threshold for them is quite different than pegging a number or something like that, like an audit firm would do. So I would strongly suggest that you do not try to fall back on the fact that the funds are audited and so on, because I don’t think you’ll get very far that way.

And I think that they’ve also made it pretty clear that the chief compliance officer’s role – or at least their department’s role – is shooting clued, testing some of these things and providing proof that some of these things were tested. So in other words, as Lindsey mentioned, forensic testing periodically throughout the year is something that would likely go over well with the SEC because they know that somebody in-house, who is not necessarily the person that’s booking all the fees and expenses, is looking to make sure that they’re allocated properly among the funds. That things are being charged back to the funds are things that are disclosed in the LPA and offering materials and so on. Which again, is just something…

Green: Yeah, I mean that’s a good point.

Boyle: …that just really an auditor would do.

Green: Yeah, I mean that’s a good point, Amy. And I think the other thing that should not be assumed is if you’ve been recording and/or reporting and disclosing fees and expenses the same for many years that you have no issues. I think it’s really important to have some type of test regimen that is done on some level of frequency to make sure that fees and expenses conform with the documents that are in place.

Snow: I’d like to ask a follow-up question. Sorry, go ahead Lindsey, and then I have a follow-up question.

Simon: I just wanted to also point out, just from a compliance perspective and Amy you can probably speak to this too, is that it’s normal that you would find – once you do your testing that you would find – some items that perhaps were characterized in a way that when you look back on them, you would like to re-characterize. And so the more frequently you’re able to do these test, the better off it is. You don’t have to then go to you auditor and say to Tom, “This was a big mistake.” I need to do anything with my auditor, change any numbers. Figuring it out as quickly to the time period as it happens is possible, is a much better approach.

Snow: Quick question, maybe an observation, which is that many private equity firms are operating from funds that have documentation that was put together maybe ten years ago. Talk about the challenge that presents because the expectations now from the SEC and from investors have changed. And yet, a lot of the terms surrounding disclosure in these older funds have not changed. How is that affecting some of the managers out there in the market today?

Simon: So I think it affects…

Snow: Oh, sorry. Go ahead, Amy.

Simon: No, it’s Lindsey. But Tom, you can go ahead, please.

Green: Well I would definitely agree with that point in terms of the older documents. I don’t think you – I think we can observe over time how fund documents such as PPMs and operating agreements and other related party agreements in a fund structure have advanced. The entire fund formation – excuse me – and reporting process has changed. And the parties that are participating are a lot more focused, educated and accountable. So I think that, as a result, professionals such as compliance consultants, attorneys and accountants have been able to elevate the document to be a little bit more tighter in terms around fees, expenses and other conflicts of interest issues.

Boyle: I think also there’s other ways. If there’s something that you feel like, as a manager, wasn’t adequately disclosed in the past. I mean, I realize this is a touchy topic but there are other ways to go back to partners – limited partners – after the fact. A lot of these funds have advisory boards, for example. So if there’s something that you feel like, well now the rules have changed and we probably should just make sure everybody’s on the same page, that’s one way of doing it as opposed to amending documents that are very old. Sometimes financial statement disclosures will get you there, but not always, but those are some suggestions as well.

Simon: I also – so Amy, you had mentioned that when you go to PE conferences, you hear a little bit about items before it hits real estate. And one of the things that some of my PE clients across the country are starting to do are additional supplemental schedules that break down some of the fees because their documents might be ten years old. So again, many different creative ways of disclosure but another point is that I think it’s important – most of the people, hopefully on this call are people that are in the CFO role. And I think that the CFOs know, someone who’s a CFO knows which expenses are generally booked as fund expenses. And so having the CFO involved in drafts of new fund formation documents, I think, is important.

Boyle: I think that’s a very important point, and also having a tone internally that is conducive of supporting the compliance function and having even the principles of the firm understanding and on your side that all of this stuff is important as we’re drafting documents. Sometimes for a firm, that takes time to get the chief compliance or chief financial officer involved in all documents that go out the door. But that is something that we do here at GTIS – the general counsel and myself see pretty much everything before it goes out, just to make sure that we feel like we have everything disclosed that needs to be.

Simon: And Amy, I don’t want to – So I think you should be given a lot of credit. Amy’s also been very good, which is hard to do, in the law firms are not often – and maybe not your law firm but other law firms are not often – as eager to break with their tradition of being more vague in the documents. It’s safer. I mean, I’m a lawyer myself and it’s safer it seems like to have some language that’s vague. But when you know as a CFO or the CCO that you are doing something, I think making sure to be involved in that document process and knowing when to push to include some more detail, I think is really important.

Snow: I’d like to get into a bit more detail about this forensic testing that’s been mentioned. Since all of you say that getting a routine audit done does not give a blessing of compliance to the way that fees and expenses are treated. What exactly are you doing when you’re testing your structure for fees and expenses? And Amy, without giving away too much secret sauce of your firm, what does it mean roughly to test your fee and expense structure?

Boyle: So I have somebody on my team that literally has the excepts basically of all of our limited partnership agreements. We have about 16 different products here between funds, which we have about six of those. And then we have a bunch of co-investment vehicle which all have their own limited partnership agreement. So we’re constantly looking at what’s in those agreements and tying that back to the expenses or fees that are being charged to those funds. So I have somebody that goes back periodically throughout the year, basically testing a few funds at a time to make sure that we’re doing what we’re telling LPs we’re doing. It’s not really much more difficult than that. It does require having somebody dedicated to that role though to have the time to do it.

And it’s not just fees and expenses. I mean, we also look at things like side letter agreements with investors. We have quite a few of those, and just making sure we understand what’s in there and reminding the team here what’s in there so that we’re doing the things that we promised we would do.

Green: Yeah, and I’d add on to that – David, to add on to that too is if a company hasn’t gone through this process maybe the first thing they should consider doing is re-engaging their legal counsel to review all existing governing documents to make sure that they’re updated for compliance with current regulations, best practices and just allowing for better transparency to investors. I agree that current activities should be reviewed against those documents, and something else to consider – and I think Amy mentioned it earlier – was just your overall organization structure and tone at the top. I mean, one thing that I’ve noticed over the past handful of years is that it just takes more involvement by the entire company whether it’s asset managers, property managers, etcetera to meet the deadlines and burden of all this compliance and reporting.

Snow: Does anyone else have thoughts on what a manager might consider doing in order to take that next step to ensure the integrity of fees and expenses? What other practices have you seen that look like they are effective and would satisfy – potentially – investors and even the SEC?

Simon: So Amy mentioned having a bible, if you will, of all of the different funds that you have and then what the provisions say in the LPA. I think that that doesn’t always give you everything that you need to know. So just as a concrete example, it might say do you know insurance in there is an expense. But it doesn’t say – and the First Reserve case actually was about this – it doesn’t say do you allocate 100%? Do you allocate 50%? It doesn’t give, in the LPA, an indication as to how you’re going to allocate that. And so I think it’s very important – and the SEC pointed it out in the Apollo case recently – having an internal procedure guide for your finance department as to how you’re going to go about allocating specific items like annual limited partner meetings or ALPAC meeting or travel.

Having a whole list of items that are typically in your LPA as being allowed to be charged back – how you do that is really important to have your own guide for that. So I think that that’s something that helps set you up for success and then gives you a framework. And then it’s something also that the SEC can see that you’ve thought about and that you’re following.

Boyle: And obviously something that we haven’t brought up in terms of probably best practices is just understanding internal risk and the things that definitely should be disclosed for example related-party transactions – especially around fees and expenses – or any kind of conflict of interest. We take the approach here that if it’s even questionable, it’s disclosed. There’s really no upside in not doing that in our opinion, so understanding those things and also [respect ?] the tone at the top and just having a complia…having everybody on board with compliance, because the compliance officer or the financial or somebody who’s responsible for this may not be in every conversation within the firm. But people within the firm need to understand when things like that arise that it needs to be communicated to the people who are responsible for disclosure.

Snow: Let’s get into a topic – and obviously no one here has ever run afoul of any rule – but for those firms that maybe have a weaker compliance by way of fees of expenses, what would that end up looking like? In one of our planning calls, I believe Lindsey it was you that mentioned the term triple whammy. Can you walk us through what a firm that does not have its ducks in a row might look like by way of fees and expenses?

Simon: Sure, so I guess to bring it together, I would say that you would maybe have vague offering documents. You would not have internal policies and procedure guides as to how you’re going to allocate. You wouldn’t have a spreadsheet set up as to the different funds and their calculation methodologies. You may or may not be calculating correctly, but then you also wouldn’t be disclosing specific items. So for example, in a financial statement footnote having a related-party transaction footnote that has dollar amounts or if you had a co-invest vehicle that received certain fees that you didn’t offset. Just using the financial statement footnotes or your ALPAC as some way of disclosing, so making sure that all of these documents and procedures together make up a strong hold.

Boyle: I think that sometimes – and maybe Lindsey you could touch on this with the various investors you see, or Tom – but I think some people struggle with how much do you document internally and so on. I mean, my perspective is probably kind of conservative, but I would rather have the documentation than not. I’d rather if the SEC came in and audited us, I’d rather be able to say to them, “Look, this is what we do.” They may not agree 100% with what we do, but at least there was a thought process there and documentation that there was a thought process and there were procedures around it. But what do you see with your other clients?

Green: I mean, Amy, that’s definitely a best practice. Every transaction cycle and related-party arrangements should be documented. That includes not only fees and expenses, other related-party arrangements, but also the valuation process as well.

Simon: And I agree. I think that there was a bigger tendency to not disclose when registration first occurred in 2012. And I think that there’s been a tendency, given these SEC cases. People are getting examined. They’re seeing their peers. People are hopefully going to CCO and CFO groups and going to conferences and listening to webinars like this to hear that really the prevailing best practice is when in doubt to disclose.

Snow: A question from me for anyone. There is a concept of fairness in allocation of expenses that is expected. What does that mean in practice, and what’s a good way of summarizing what this notion of fairness means?

Boyle: Sure, I can start. I guess a lot of the focus I think has been on co-investments for example or various funds that share a certain type of expense. Lindsey was mentioning earlier that isn’t always just good enough to disclose that you’re charging certain things back, but how maybe – at least in your internal procedures – how you’re charging something back. So an arbitrary percentage, for example, of charging a certain expense back to various funds may not be the best approach. There should be some sort of thought process around who should bear that cost and why. And I think that the SEC has spent a lot of time focusing on this, particularly with co-investments where the co-investor is sharing in certain expenses like the funds are and so on. That’s kind of what I’ve been hearing.

Simon: That’s exactly right, and also there are some situations where you might have two funds investing in the same deal. It could be that you have another investment advisor that’s investing – especially in real estate. I see a lot of my clients ending up in the same deals or different advisors in the same deal too. So the term is actually fair and equitable, and so it’s supposed to be – for whatever that word equitable brings into it – it’s just supposed to be as fair to both parties as possible.

Boyle: And also, the other meaning I think could be that if you have disclosure in your limited partnership agreements or elsewhere that says that seasoned expenses will be charged at an arm-length basis or on market terms, that does give the obligation of having to actually make sure that the fees and expenses are at market terms. So however you decide to do that, whether it’s just you testing the market yourself or hiring somebody to do that. The manager has the responsibly to do that if it’s in their limited partnership agreement to make sure that they are fair.

Simon: For sure, and that brings up a whole other topic about real estate firms having – unlike a lot of other even private equity firms don’t generally have this – but you guys, most real estate firms, have the word reasonable and market rate or market comps interspersed throughout their documents. And that puts an actual obligation on you to find out what the market rates are, especially if you have a vertically integrated firm or if you’re doing salary reimbursements. I mean, we could do a whole webinar just on that topic alone, but by having a market rate component, and by reimbursing to the fund – having the fund reimbursed for the expenses – there is an obligation on making sure that those are…

Snow: Let’s dig a bit deeper into that now. Where can managers go to find benchmarks for assessing their own fee and expense policies? Where can they go to find benchmarks for these market rates that they are, in many cases, required to seek out?

Simon: Amy, do you want to – I mean, I’m happy to, but do you want to…

Boyle: Sure, I mean, sure. I mean we already deal with this a bit here, although it’s starting to become a bit more prevalent here and is something I’m actually working on as to where do we get that kind of stuff. But some examples that we’ve used in the past are under certain circumstances, we can charge internal GTIS employees back to our funds that perform construction and development services, because we’ve learned that by doing a lot of development in Brazil for example, that by hiring people internally, it was a lot more efficient for our investors. So those people are charged back, and we’ve been able to get information from other firms that maybe we would have hired for example. That’s one source.

We also do a compensation study at the end of the year to see what we are paying people internally, and is it market based on their job function. There’s actually some surveys out there that I like in the US, like Preqin does a survey that is actually pretty good, I think, for real estate managers because it actually goes into different roles that you would find at a real estate private equity firm. So I reach out to a lot of recruiters to get that information. It really depends on what we’re trying to benchmark, but those are some examples. And I think there’s also firms out there that could do it for you, but that’s not something I’ve looked into as of yet.

Simon: So I agree. The part that’s hard is benchmarking percentages like if you’re doing a certain percentage for construction and development or property management or fees that aren’t people – that aren’t salaries – where you can’t figure out what the going rate is for somebody. That’s where it gets a little bit trickier. I’ve seen industry groups try to consolidate. I think that some people are nervous about giving the range that they charge to their peers, so I do think that this is one piece that is difficult for those in the industry to figure out a proper way to do a realistic market comp benchmark to.

Snow: Let’s move on to a topic having to do with what happens if you are found to be a firm that doesn’t have the highest standards of fee and expense policy or disclosure. Again, without naming names, what are a range of negative outcomes for a firm that is a bit lackadaisical in its approach to this topic, and what might be the consequences?

Simon: I’m probably the only one that can answer that right, cause… So there is a range, and a lot of it depends on how your SEC exam goes. So I generally say that the more forthcoming and cooperative you are, generally the staff reacts accordingly. So you can be anywhere from a deficiency letter, which there’s not a single firm that escapes without a deficiency letter. Everyone should know that that doesn’t mean that that’s terrible or bad or that you are going to lose your job as the CFO or the CCO. That’s standard. The SEC really can’t be in existence if they’re going to go to all these different firms and not have any suggestions.

Sometimes also the deficiencies aren’t actual deficiencies of law. They’re suggestions, which makes it a little bit more complicated. So that’s on one end of the spectrum, and then the other obviously would be an enforcement case. Some of the cases you will note that have come out recently are settled in administrative proceedings as opposed to complaints, which means that there was a great deal of cooperation by the advisor that they agreed that these were problems. They have been self-reporting in some of these cases as well, so when the SEC comes in a firm might say to them – as happened I believe in First Reserve too and WL Ross – “We noticed that we weren’t charging something accordingly.” And the SEC still had an action against these advisors, but their penalty wasn’t as high, and the advisors gave back the amount of money to the investors that the SEC and they had decided was inappropriately expensed.

So there is a range. I mean, I don’t work with anyone, nor have I seen – well actually, I take that back. I have one client. But with all of my experience on this side of the fence – when I was at the SEC it was different, but on this side of the fence – everybody, I feel like, is trying to do the right thing. And so that’s what’s a little bit hard about being in the CCO and CFO role is, is that it’s generally an inadvertent mistake or it’s just you don’t know what you don’t know. Or a new case comes out that says you shouldn’t be allocating according to the percentage of ownership in a deal. You should be allocating pro rata, and so it’s not that anyone’s intentionally doing anything wrong in my opinion, which is again to tie back to why it’s important to do these testings of the program and to be a part of industry groups and to be on the email blasts so that you really know what’s going on and that you can try to make your program change with the times as the regulations and the enforcement cases are changing.

Snow: A question for all of you, and without asking anyone to comment on any specific cases where firms ran into trouble either with their investors or with the SEC, what are some common themes of these firms where a lesson has been learned and where it’s clear what the pattern of thinking was that led them down the path to eventually get into trouble? Was it a hesitancy to fully disclose everything? Was it a failure to do the routine testing of fees and expenses or was it a combination of these things?

Simon: Am I the only one that can answer that one too again, probably? So I think it’s a combination of both. I mean, traditionally firms that have been around longer have more of a history of living with documents that are vague. Of not having to have done this before, so to tie back. Amy had mentioned it’s important to have tie-in from the top and then Tom seconded it. That is so important. Your principles of your firm should know how important this is. I think that the initiative in California is pretty relevant in terms of the disclosure that’s going to be required for California pension funds investing in alternative managers. That’s going to change disclosures.

So I think that the mindset probably needs to change a little. I think there definitely has been a hesitation to disclose. I’m sure that Tom, you probably could relay situations where you’ve suggested further disclosure in financial statement footnotes and have gotten a little bit of pushback. So I think that the industry sort of is limping along to a little bit more disclosure. Hedge funds do a ton more disclosures. So it’s just a matter of getting to that level too. So I think that is probably one of the more frequent road blocks.

Boyle: I think also a lot of real estate managers, especially smaller ones who haven’t been registered for as long. I mean, this is – a lot of the cases that came out and for a lot of the real estate managers that are now subject to audit – it’s a big eye opener for them, right? Because we’re not public reporting companies and we have very – in most cases – very sophisticated investors, very highly negotiated documents with these investors. So I think it’s a bit of a wakeup call to a lot of managers that some of that doesn’t really matter to the SEC. That’s been my observation by talking to a bunch of people.

We’re sort of up to a lot of the same standards that a public reporter would have. Not everything, obviously, but they have an expectation that you have adequate controls in-house, and that our LPs are very aware of what’s going on. Which isn’t, like I said, I completely understand the concern. I think it’s just as a private fund manager, I think that’s probably a bit of an eye opener to many people in the real estate industry.

Green: I mean, Amy, that’s a great point. Especially if you’re a newer fund or a startup fund, my advice would be to get in front of it at the very, very beginning. And surround yourself with good professionals and consultants and fund counsel because it doesn’t become extremely complicated, and there’s a lot at risk. Not only from a fine standpoint, but there’s reputational risk. There’s personal risk in terms of if you’re the chief compliance officer, somebody in the financial reporting world. So it really is wise to make the investment in this compliance and reporting function.

Snow: Okay, well this has been a great conversation. I know I’ve learned a lot, and I want to thank our three experts for sharing what they know about this topic. While I said that there would not be live Q&A from the audience, I would encourage anyone to send in questions via the Q&A function that you see in your webinar module. And our experts will receive these questions, and will have the option of answering them offline. I’d also like to bring your attention to an upcoming event organized by Privcap and in partnership with RSM and other partners. It’s called Game Change Real Estate 2016. It’s going to take place in Chicago on November 2. People who attended this webinar will get a discount, and we hope to see you all there. Last year’s was a great event, and this year’s promises to be even better. And you can check it out at regamechange.com.

Once again, thank you to all of our experts and thank you to RSM for partnering on this webinar. It will be available afterwards as a playback, and also as a report. And in the meantime, have a very nice week. Thank you very much.

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