Trends in real estate private equity

Tightening regulations

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Regulations across the financial services sectors will have a substantial impact on available capital in the real estate fund sector globally while both the United States and Europe are enacting stricter enforcement on alternative investment funds specifically.

Beyond AIFMD and Dodd-Frank, there are parts of other new financial regulations that will have an indirect effect on the real estate fund sector, and some will have global reach.

Europe: AIFMD Level 2

Of the large-scale financial regulatory measures being introduced around the world, two major pieces of legislation target alternative investment funds directly. In Europe, the sector is gearing up for the second phase of the AIFMD.

The directive’s aim is to bring regulation of the alternative investment fund (AIF) arena into line with current regulation for public funds by improving transparency in the sector’s risk management practices and establishing a standardized set of rules across the EU member states.

The AIFMD will take effect in July 2013 and will impact all alternative investment funds, including real estate funds.

US: Dodd-Frank

The second large-scale regulatory measure affecting the funds sector is the Dodd-Frank Act in the US. Like the AIFMD, the Act requires many fund managers to register with the Securities and Exchange Commission (SEC) for oversight and review.

One of the key challenges for fund managers, however, has been determining which ones are required to register. There is still a great deal of uncertainty around this point, and until the SEC offers more clarity, it is likely that many may go through the process unnecessarily. The key question is whether real estate, under the Investment Company Act of 1940, is considered a security or not.

How have you prepared for an SEC exam as a registered investment advisor (choose all that apply)?

How have you prepared for an SEC exam as a registered investment advisor (choose all that apply)?

Source: Ernst & Young LLP

Indirect regulatory impact

Beyond AIFMD and Dodd-Frank, there are parts of other new financial regulations that will have an indirect effect on the real estate fund sector, and some will have global reach. Basel III, for example, could greatly influence how much capital banks pour into the sector because of the significantly steeper capital requirements it imposes on banks.