ESSENTIAL COMPONENTS OF A COMPLIANCE AND RISK MANAGEMENT PROGRAMME FOR REGULATED REAL ESTATE INVESTMENT MANAGERS
Global real estate investment managers (REIMs) occupy a unique space within the continuum of regulated investment management firms. Unlike traditional investment managers, REIMs function as operators as well as investors, which leads to two fundamental features of REIMs that influence the design and implementation of compliance and risk management programmes.
First, the application of regulatory requirements depends on whether investments and fund vehicles are characterised as securities or real estate, and such determination will dictate the design of compliance and risk management programmes. The various types of vehicles and transaction structures can meander in and out of the bright light of securities regulations; some transactions and funds stand squarely in the scope of regulation while others are free to operate in its shadows. Securities regulations designed for traditional investment managers do not squarely align with REIM business models. Therefore, REIM compliance and risk management programmes must tailor the interpretation and application of regulatory requirements to conform to their operational realities.
Second, there are meaningful cultural differences between REIMs and traditional investment firms. A crude simplification of this cultural difference is that REIMs have an operator mindset focused on executing the plan for the investment, whereas traditional investment firms have a fiduciary mindset focused on delivering the investment objective to the client. This distinction is more than subtle semantics; it reflects the liquidity of the asset class. The liquidity of traditional asset classes enables the client to easily redeem investments if the manager fails to deliver on the investment objective, which encourages the manager to prioritise controls that protect the client’s interests over the success of individual investments. Real estate lacks the same liquidity and instead demands that the manager remain committed to see an investment through to conclusion, which prioritises controls that support operational execution.
Oct-Dec 2025 Issue
Effective Compliance LLC