A decade ago it was acceptable to run a real estate investment business using a collection of spreadsheets, which fluttered (slowly, of course) from one department to the next. Business was good, regulations far from onerous and everybody was used to working this way, so why change?
Fast forward ten years and not only are we still suffering the economic chill of 2008, but there is also a cold front heading this way in the form of new regulations such as the Alternative Investment Fund Managers Directive (AIFMD), Solvency II, Basel III, EMIR, FATCA and Dodd-Frank.
These directives all have their own defining characteristics – but they have one thing in common; they are designed to provide investors and other stakeholders with better shock testing, security, analysis and transparency. Up-to-date reporting based on a firm foundation of credible data will soon be a necessity and, frankly, spreadsheets are not going to cut it.
Here’s why: No systems are completely secure, but some are better than others. Spreadsheets are fine if used by just one or two people, but at an enterprise level, protection is woefully inadequate. Other than basic password restrictions, there is little control over who opens a spreadsheet and what changes they make.
Also, although spreadsheets can be used for data modelling, they have not been designed specifically for this task. For example, they don’t provide any dimension around time, which is a significant handicap as financial modelling assesses how parameters evolve over time.
So, astute fund managers need to look beyond the threat of endless record keeping and instead recognise the opportunities this situation presents. By adopting new processes and systems early on, fund managers will be well-placed to anticipate future risks. For many companies, moving from a retrospective or immediate business model to a predictive model will be a valuable side effect of the regulations – and one that could offer competitive advantage.
This is because the regulators are not the only ones demanding more information from fund managers. Investors are also seeking deeper levels of intelligence.
“Any investor who deploys new money now, or who selects a new manager has to be very careful with that decision,” said Andrew Thornton of Internos Global Investors. “Investors lost money from 2007 to 2012, but if they invest money today they are expecting to make money.”
So, people have to make the right decisions and show that they have learned from previous mistakes. For fund managers, having proper systems, rigorous procedures and good alignment are critical, so that they can gain the trust of investors by providing accurate forecasts and reports. When confidence does return to the real estate market, it’s only natural that investors will choose to place money with those fund managers who prove they have risk under control.
But, the vast majority of fund managers are still making decisions based on spreadsheets that have no traceability. So, when a client asks: “Why did you choose that option?” there is no way of showing them.
The only way of accelerating the decision-making process is to integrate the flow of data into a centralised database system. This will speed up the transfer of data from property manager upwards and make the decision-making process rock solid.
With this centralised database system you are always connected to underlying data. So, by just pressing a button you get the latest set of data instantly and you can pass it up to the next level without having anything to rekey or check. Even if you are using a third party to supply property management services, it is straightforward to connect their data source to yours.
Structured data in a single database is the goal – one that is impossible to score with spreadsheets. Everyone will be able to trust the underlying data, the formulas and the models.
Doubts over what regulators may do in the future make it imperative for fund managers to build flexibility into their IT solutions and business process. But uncertainty goes hand in hand with opportunity. Only managers capable of embracing the challenge, by identifying the key processes in need of change and acting upon them at an early stage, will enjoy the benefits of this new industry landscape.
About the author
Guillaume Fiastre started working in Real Estate in the mid 1990s. In 2000, he decided to set up his own software publishing company to develop FinAsset, the first property asset management solution in France. In early 2003, when Taliance took over FinAsset, Guillaume Fiastre became the deputy managing director of Taliance, and the CEO in 2007.
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