re fund manager market validation interview summary feedback final

Summary of RE Fund Manager Market Validation Interviews 1 CONFIDENTIAL AND PROPRIETARY

Real Estate Investment and Funds Management Operational and Infrastructure Challenges – Summary Feedback from Market Validation Interviews

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Table of Contents

Executive Summary 3

Introduction re Market Validation Approach / Discussion Topics 4

Operational Challenges and Industry Grievances (by Peer Group) - Composite Rankings on Top Three Issues (by Peer Group) - Key Interview Quotes on Top Three Issues - Peer Groups Responses to Operational Challenges

9

Market Validation Commentary on Current Real Estate Software Market - Key Interview Quotes - Software Utilization Distribution (by Peer Group)

16

Market Validation Commentary on Back Office / Business Process Outsourcing (“BPO”) and Funds Administration Solutions

- Expense Recovery Expectations

20

Appendix - Prior Summary on Operational Challenges and Industry

Grievances - Tabular Results of Top Three Challenges (by Peer Group)

23

Real Estate Investment and Funds Management Operational and Infrastructure Challenges – Summary Feedback from Market Validation Interviews


Executive Summary FrontLine Partners interviewed 16 fund managers and another 12 industry contacts to understand their perspectives on the key operational and infrastructure challenges facing the real estate fund manager today. Some of the key findings included:

» A number of respondents commented that our summary of industry grievances and operational challenges was among the best they have seen. In each case, we asked participants for their top three operational challenges. While the results varied somewhat by firm size, three main issues emerged:

» Data collection, management and integration is the most common operational pain point, primarily due to the lack of integrated solutions by the software market.

» Complexity in financial accounting and investor reporting were nearly tied with the first issue, with key challenges on waterfall / return computations and increased separate account reporting demands.

» Gaps in software tools for portfolio analytics, what-if analysis and other forward looking tools hurt the ability of the fund manager to conduct more effective portfolio management and improve transparency.

» Respondents confirmed our hypothesis that the real estate software market has been limited in its ability to deliver the required solutions to the market, and many are increasingly looking at BPO / fund administration solutions.

» There is a sizeable gap in the real estate software market for real estate fund managers, with most respondents observing they did not believe the software providers were meeting their needs, particularly in the realm of integrated solutions and forward looking decision making tools.

» As a result, many firms spent relatively little (i.e. less than $1MM / year) on technology and complained the software market firms were trying to put the customers (i.e. fund managers) on the hook for what should be industry level development needs.

» Real estate fund managers have intensified their use of outsourcing solutions and / or back office fund administration shops to enable better back office functionality. However, the market depth and completeness of service offerings continues to be somewhat of a challenge, as firms often work with multiple providers.


Introduction re Market Validation Approach and Discussion Topics




Introduction to Market Validation Discussion Topics FrontLine Partners engaged with real estate investment management market industry executives regarding market validation for the state of back-office and software solutions

Introduction

Engaged in an Information Exchange

that will Promote Education About

Operational Challenges / Industry Grievances /

Issues

Explored Firm’s Relative Utilization of Back-Office and BPO

Solutions in the Funds Management Market

Provided an Overview of the Real Estate Fund

Manager Technology and Services Market and Shared Our Views

Gained Understanding of Industry Leader Views About Back-

Office and BPO Solutions and Their Place in Real Estate Funds Management

Our purpose is to share our view of operational & infrastructure

challenges in the R/E fund manager market, discuss state of software and

back-office solutions


R/E Fund Manager Market Validation Interviewees We interviewed 16 fund managers (7 large – over $10B AUM, 5 medium ($1B-$10B AUM) and 4 small (<$1B AUM) plus an additional 12 other industry contacts. Interviewees were typically C-level or Managing Director level resources at their respective firms. With exception of largest firms, most spent relatively little on technology. Respondent Distribution

by Fund Size ($ AUM) Respondent Annual

Technology Budget ($M)


» On the whole, software providers in real estate are not evolving quickly enough to meet the needs of the money sources (e.g., REITs, fund managers and institutional investors). Software providers view the market from a property management (asset) perspective and not a financial (cash flow or investment) perspective. Additionally, the market is going global and most providers lack the financial resources to go global.

» REITs, fund managers, and institutional investors require more sophisticated analysis on cash flows and investment positions / exposures. They want to achieve modeling capabilities that exist in equity and fixed income markets. They do not currently have the tools or methodologies to analyze risk, evaluate what-if scenarios, and conduct portfolio benchmarking and dynamic modeling.

» Current software providers are enabling real estate companies to do very basic investor reporting and income distribution. They are not enabling the higher value modeling and portfolio management required by institutional investors.

» Software providers see the growth in moving from property management to investment/portfolio management in real estate and going global. We believe the real opportunity is providing those services and solutions to the funds management firms and institutional investors.

» We believe a dedicated real estate funds administration / BPO firm focused on this market will enable institutional investors and fund managers to continue to focus on activities that are higher value, than data collection, management and reporting.

Original Hypotheses / Observations

Original Hypotheses Real estate software providers have not provided the depth of functionality required by institutional investors. The software model has not been widely embraced and the market is open to new service based solutions, from BPO and / or fund administration firms.


Significant operating and infrastructure challenges continue to vex an industry, grown substantially by “deal guys” with less expertise in back office operations.

Hypothesis Conclusions

Key challenges are: 1) Data collection and management given lack of integrated solutions; 2) Complexity in financial

accounting and reporting; and 3) Limited portfolio analytical tools for transparency

There is a sizeable gap in the real estate software market for fund managers, with

fund managers looking for more integrated solutions and decision tools.

Respondents noted that the industry still suffers from a lack of integrated solutions,

and forward looking tools. Many complained that customers are “on the hook” for industry

level development needs.

Real estate fund managers are increasingly looking at their back office

operating models for more robust functionality and integrated solutions.

Outsourcing usage has intensified to meet back office needs as many firms re-examine their operating model, even including shared service centers, re-badging and lift-outs (e.g.

Morgan Stanley to State Street)

Market Validation Interview Conclusions Overall, respondents confirmed our hypothesis that the real estate software market has been limited in its ability to deliver the required solutions to the market, and many are increasingly looking to BPO / fund administration solutions as an option.

9 Summary of RE Fund Manager Market Validation Interviews CONFIDENTIAL &PROPRIETARY

Peer Group Responses to Operational Challenges and Industry Grievances

» Project Framework and Timeline

» Project Methodology and Approach

» Key Document Section Description


Ranking of top three operational issues by fund manager size

Total Across All Firms

Large Firms (over $10B AUM)

Medium Firms ($1B-$10B AUM)

Small Firms (Under $1B AUM)

Legend: (1) Data Standards, (2) Data Collection, Management & Integration, (3) Operational Hand-offs & Processes, (4) Complexity in Financial Accounting and Reporting; (5) Portfolio Risk Management, Reporting & Transparency; (6) No response – See APPENDIX for original content description and tabular results by size


Key Market Validation Interview Quotes re Key Operational Issues Data collection, management and integration with various software platforms and business management needs appears to be the largest operational pain point in the industry

Data Collection, Management & Integration

» “Data management is their largest issue; however, it is very important to define what you need and to be precise as to definitional standards otherwise, you still have challenges with the reliability and consistency of information.”

» “Biggest challenge was in reporting, taking the data and converting it from data at the operating level to manage the business.”

» “Data aggregation is a huge issue in continental Europe; no one service provider to get the data into central and conforming basis - very unlike the US and UK markets which are more mature. In these countries, lots of smaller operators and they won't invest in these type of reporting software solutions; therefore 'cry out' for data and consistency. Most of these firms use Excel.”

» “Data management, collection and usage of that data is their biggest challenge - if you have the data, felt that you can alleviate a bunch of these issues; however, they really struggle to get their hands on the data in timely manner.”

» “Controller is spending 90% of his time, chasing down data, need the right expertise to know how / where to get it, but a lot of time / energy to capture this information every month. Commented that CFO is doing about 75% of CAO job, and down from CAO to controller because of this data management challenge. These levels should not be spending this much time / energy simply in data capture efforts.”

» “System integration - not knowing if you can get all the key information / flows into one system or have it communicate well between the various platforms.”

» “Lack of integrated software or solution provider(s) - software, expertise and delivery platform of capabilities or solutions.”

» “Struggle with the integration of accounting, reporting and data repository for all this.”

Key Interview Quotes 2

Note – Comments herein were taken from individual market participants and reflect feedback / observations in the market, not necessarily the view of FrontLine Partners.


Key Market Validation Interview Quotes re Key Operational Issues Complexity in accounting and reporting for varied deal structures (i.e. promotes / waterfalls) along with increasing demands for investor reporting (particularly with separate accounts) represent the second largest set of operational pain points in the industry.

Complexity in Financial Accounting, Investor Reporting

» “Growth in number of legal entities and the complexities in accounting for multiple entities, reporting. Note every deal requires different reporting, for different investors and some cases different accounting requirements.”

» “Complexity of financial accounting, reporting and waterfalls continue to be challenge (as every deal is pretty unique).”

» “Key distinctions between partnership level accounting for profits, cash flows, waterfalls, etc. versus the fund level accounting.”

» “Sees tremendous friction in investors who are big on separate accounts as part of their strategy and wanting that level of reporting / access to that level of reporting when they are in a fund strategy.”

» “Investor reporting has become more intensive - key financial metrics, some questions on who gets what level of information whether it was requested or not / highly sensitive area.”

» “Separate accounts investor report production horribly clumsy effort for them (e.g. IT pulling data, dashboards,); also investor changing demands on timing, what to report, what level, etc.”

» “Investor reporting is a key challenge to take all the data and analytics to get it to the "pretty” state.”




Key Market Validation Interview Quotes re Key Operational Issues Overall, interview respondents validated the need for more robust solutions in the portfolio risk analysis and decision making tools for forward looking analytics vs. reporting. This not only drives ability to improve returns through better portfolio management, but also improves transparency.

Portfolio Risk Management, Reporting & Transparency

» “Fund forecasting and what-if analysis, rollups have been a big challenge.”

» “Reporting and transparency tend to be more static type analysis; whereas the portfolio risk analysis needs to be more dynamic - they struggle with this.”

» “Analysis of the portfolio risk and enough tools which have emphasis on the forward looking / dynamic modeling and impact assessment from various what-if scenarios, with resulting impact on the portfolio. Felt they could really see more value out of this area, but spend so much time getting to the data.”

» “Really perceived a major lack of focus / tools and emphasis on the forward looking what if and decision making tools to understand / act upon the portfolio risk by performing portfolio analytics in a robust scenario way. Need to do more work in industry for analytical capacity to do the “what-if” across assets through to the fund / investor positions...Be more forward looking vs. reporting oriented.”

» “They have difficulty really getting to the value add of their role as they spend a lot of time on either ad hoc requests, or finding data to compile before they even get to the analytical (value add) review.”

» “Challenges in valuation and consistency in the application of valuation methodology and key assumptions. Transparency increasingly becoming more of an issue - even in a fund format (vs. separate account) and even with long term investors.”

» “Transparency has become more of a challenge - both in terms of internal management reporting and visibility to performance, as well as for the external reporting matters.”




Fund Size Industry Responses to Operational Issues Significant blurring of responsibilities between Property Operational Management (external

property manager or JV/Operating Partner), internal Asset Management and internal Investment/Fund manager

Asset Management tend to be hands-on with budgeting, leasing, aged receivables and CAPEX

Deal-driven structure means inconsistency in fund structures and deal types and terms Lack of technology support above the core accounting platform (generally reliant on Excel) Considerable manual duplication and dissemination of data to different teams

Up to $1B AUM

Focus on improving key business processes: deal pipeline and approval, annual planning, reforecasting, manager data collection, investor reporting

Clarity on roles and responsibilities both within each fund and across business functions Investment in core technology: investment/fund accounting, performance management,

document management, deal pipeline (investment and lease), data management (warehouse/repository)

Introduction of centralized/shared services (HR, accounting, compliance, reporting) as well as some outsourcing (fund and investment accounting, due diligence, modeling)

$1B – $10B AUM

> $10B AUM

Greater degree of outsourcing of non-core business processes around fund financial control and reporting: financial reporting, investor statement preparation, investment control, asset/debt reporting, fund waterfall, fund/investment statistics, investor questionnaires, valuation process management; use of balanced scorecards to manage outsourcing providers

Integrated processes between property, asset and funds management Integrated technology support reducing manual touch points and more streamlined flow of

information

Industry Responses (by Peer Group) to Operational Challenges Peers in the industry have responded differently as they scale operations.


Investor Reporting

Fund/Portfolio Management

Asset Management

Fund/Investor Accounting

Budgeting / Forecasting

Leasing

Property Management

< $1B AUM $1B - $10B AUM > $10B AUM

Heavy

Outsource Outsource

Outsource Heavy Heavy

Light Light Light

Industry Responses (by Peer Group) to Operational Challenges Peers reported varying levels of involvement in key business functions as they grew in size and complexity

16 Summary of RE Fund Manager Market Validation Interviews CONFIDENTIAL &PROPRIETARY

Market Validation Commentary on Current Real Estate Software Market





Key R/E Software Market Validation Interview Quotes With exception of a few large fund managers, most respondents didn’t perceive the real estate software market firms as meeting their technology and functionality needs Is the R/E Software Industry Meeting Your Needs?

» “No, the industry has moved on, however, software players are not where they need to be. There are a few of them, who are making movements in the right direction. However, most are wanting customized development and it's prohibitively expensive to go that route.”

» “No, didn't feel anyone in the real estate software market could give a price point for products and solutions, all open ended / exposure to the fund manager (customer).”

» “Generally not, felt there was a lot of point to point solutions in the market, and in some cases - vapor ware.”

» “Eight years ago, it seemed there was more focus on this, then it died down; seems to be making somewhat of a comeback.”

» “Believed Yardi was clearly out in front as they had the ability to invest. Saw MRI as challenged in the market due to their ownership issues. Felt Argus / Altus had taken flack in the market (lot of griping) about Enterprise, but seemed to be moving in the right direction.”

Biggest Technology Challenges in the Market / Gaps in Current Technology Functionality

» “Major issue in the industry is that the systems don't communicate, they are all closed systems, Yardi database is very difficult to pull data out once you have it in their system due to proprietary programming codes.”

» “Biggest challenge is the gaps in the systems and lack of system integration for the industry.”

» “Lots of challenges, biggest are in data management and the lack of integrated solutions in the market.”

» “Investment Management accounting and computations for such a large number of complex deals (separate accounts).”

» “There are gaps in the model and accounting for complex entities, structure, push down from capital call requirements; also gaps in the ability to report transaction success record…another opportunity area that is pretty open in the investment management (using separate modules to model the splits and return computations)and Investor reporting.”

Key Interview Quotes



Software Usage / Distribution by Peer Group (Still Evolving from an Excel World)

Software Usage Sum Category Vendor Name Total Large Medium Small Total Large Medium Small Prev / under

16 7 5 4 16 7 5 4 Review

Property / GL Accounting Yardi 43.8% 71.4% 20.0% 25.0% 7 5 1 1 4MRI 31.3% 57.1% 0.0% 25.0% 5 4 0 1CTI 6.3% 14.3% 0.0% 0.0% 1 1 0 0JD Edwards 0.0% 0.0% 0.0% 0.0% 0 0 0 0Great Plains 6.3% 0.0% 20.0% 0.0% 1 0 1 0Microsoft Dyanmics 12.5% 0.0% 20.0% 25.0% 2 0 1 1Horizon 12.5% 14.3% 20.0% 0.0% 2 1 1 0Other - Bespoke 6.3% 14.3% 0.0% 0.0% 1 1 0 0Other - SAP 6.3% 14.3% 0.0% 0.0% 1 1 0 0Other - Peachtree 6.3% 0.0% 0.0% 25.0% 1 0 0 1

Fund / Investment Accounting AltaReturn 0.0% 0.0% 0.0% 0.0% 0 0 0 0Analyst X 0.0% 0.0% 0.0% 0.0% 0 0 0 0Efront 0.0% 0.0% 0.0% 0.0% 0 0 0 0 2Investran 18.8% 28.6% 0.0% 25.0% 3 2 0 1 4Excel 81.3% 85.7% 100.0% 50.0% 13 6 5 2Other - Yardi 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - Realogic 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - MRI 12.5% 28.6% 0.0% 0.0% 2 2 0 0Other - Sun (Europe) 6.3% 14.3% 0.0% 0.0% 1 1 0 0Other - Hyperion (Asia) 6.3% 14.3% 0.0% 0.0% 1 1 0 0Other - CTI 6.3% 14.3% 0.0% 0.0% 1 1 0 0

Investor Reporting AltaReturn 6.3% 0.0% 0.0% 25.0% 1 0 0 1Efront 0.0% 0.0% 0.0% 0.0% 0 0 0 0 1Investran 0.0% 0.0% 0.0% 0.0% 0 0 0 0 1Netage 6.3% 0.0% 20.0% 0.0% 1 0 1 0 1Excel 68.8% 57.1% 80.0% 75.0% 11 4 4 3Word & PPT 37.5% 42.9% 40.0% 25.0% 6 3 2 1Other - Asset Eye 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - SAP Business Objects 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - Cognos 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - QlikView 0.0% 0.0% 0.0% 0.0% 0 0 0 0Other - Yardi Voyager Portal 6.3% 14.3% 0.0% 0.0% 1 1 0 0Other - Access Database 6.3% 0.0% 20.0% 0.0% 1 0 1 0Other - Proprietary 6.3% 14.3% 0.0% 0.0% 1 1 0 0

Usage Distribution Percentages Usage Distribution Count

Legend:

Large Funds: Over $10 B AUM Medium Funds: $1B - $10 B AUM

Small Funds: Under $1B AUM


Software Usage / Distribution by Peer Group Size (Still Evolving from an Excel World)

Software Usage Sum Category Vendor Name Total Large Medium Small Total Large Medium Small Prev / under

16 7 5 4 16 7 5 4 ReviewPortfolio Analytics / Management Cougar 6.3% 0.0% 0.0% 25.0% 1 0 0 1 1

Taliance 0.0% 0.0% 0.0% 0.0% 0 0 0 0 2Argus - DCF 62.5% 85.7% 40.0% 50.0% 10 6 2 2Argus Dyna 31.3% 42.9% 20.0% 25.0% 5 3 1 1 1Argus Enterprise 6.3% 14.3% 0.0% 0.0% 1 1 0 0 5Resolve 18.8% 28.6% 0.0% 25.0% 3 2 0 1 3Excel 81.3% 85.7% 100.0% 50.0% 13 6 5 2Other - Yardi 0.0% 0.0% 0.0% 0.0% 0 0 0 0 2

Cash Flow, Budgeting and Valuation point Solutions Excel 68.8% 71.4% 100.0% 25.0% 11 5 5 1

Argus 43.8% 57.1% 40.0% 25.0% 7 4 2 1Argus -Dyna 12.5% 28.6% 0.0% 0.0% 2 2 0 0Cougar 0.0% 0.0% 0.0% 0.0% 0 0 0 0Kardin 12.5% 14.3% 20.0% 0.0% 2 1 1 0Other - Yardi Budget 6.3% 14.3% 0.0% 0.0% 1 1 0 0 1

Any data warehouse or data mart usage? Yes 6.3% 14.3% 0.0% 0.0% 1 1 0 0

CommentsNo (0= N/A or no response) 62.5% 57.1% 80.0% 50.0% 10 4 4 2Comments

Usage Distribution Percentages Usage Distribution Count

Legend: Large Funds: Over $10 B AUM Medium Funds: $1B - $10 B AUM Small Funds: Under $1B AUM


Real Estate Fund and Investment Management Back-office BPO and Funds Administration Solutions Usage and Implications for the Future







Factor Industry Responses & Observations Most felt our initial depiction of potential BPO services to be a little broad, but saw more potential

once we went deeper into the functional area (detailed slides) and differentiated control and oversight vs. the whole functional area.

Approximately half of respondents were in fact using some form of outsourcing or funds administration support, ranging from transactional support work (e.g. due diligence, lease abstractions) to a few who were using these firms as a recurring part of their operational support needs (e.g. quarterly valuations, ARGUS updates and roll-ups, some finance and accounting)

One firm had a captive BPO firm (due to parent relationship) and a couple had indicated they were curious on the re-badging decision Morgan Stanley made in connection with State Street

Utilization

Four primary concerns were control, process, quality and expertise – all tied into reputation Communication flow (both internal and external) was viewed as another hurdle, particularly with the

BPO firms, unless they had on-shore client and / or process management Responsiveness, timeliness and in some cases a stronger passion to “Own” the issue, rather than

simply being pure processing shops Degree that the firm was supporting operational needs at the business and ability to swap out

providers / unplug the contract if and when needed (i.e. not locked into provider)

Concerns

Market Depth of Providers

Most were concerned simply to find reliable providers in key areas; didn’t perceive one firm can do all this

Concerns over State Street, Citco, JP Morgan (i.e. private equity / hedge fund administrators) trying to migrate into real estate as they lacked critical real estate industry expertise

Few commented that market is maturing and getting more service depth from providers Market providers viewed in three key categories – BPO firms with strong F&A (finance and

accounting) yet varying real estate, Real estate BPO firms who tended to be more transactional but have moved into recurring work (including fund accounting) and pure fund administration firms.

BPO Usage and Commentary We generally found the industry interviewees had used BPO or outsourcing firms to one degree or another. However, there were key concerns over market depth / completeness of providers as well as the capacity (and passion) of such firms to support operations vs. simply process / support deal flow.


Factor Industry Responses & Observations Some questioned how material these expenditures really are in terms of the potential recovery

from not offsetting the management fee Some highlighted that you may simply be making it more difficult to achieve performance /

promote hurdles (depending on how close to various thresholds you may be at) Concerns over how material an impact are the cost pass-through on final results Some mentioned that LPs were attuned to this and even have been asking advisors about this

practice Most did not focus on the whole re-badging opportunity - even when Morgan Stanley lift out

discussed - to push costs completely through to service provider

Economics and Materiality

Concerns raised over what investor expectations were in the original capital raise effort and related marketing

Generally a feeling that is what management fee is for, so are you essentially going to make it harder to get a better management fee in the future by these tactics

Short term gain at cost of longer term relationships / fiduciary representations Some believed they had support in legal agreements, but case by case basis Concerns over how material these costs may be and 'drag' on returns in a difficult environment

Impact on Investor Relations and Future Capital Raise Efforts

Execution and Reliability

Felt this criterion vastly out-weighed economic parameters, as firm’s name / reputation at stake Concerns over State Street, Citco, JP Morgan (i.e. private equity / hedge fund administrators)

trying to migrate into real estate as they lacked critical real estate industry expertise Few commented that market is maturing and getting more service depth from providers;

therefore expense recovery may become more accepted as fund managers use third parties

Expense Recovery for Use of Third Party Firms / Providers We generally found industry interviewees skeptical on the potential for expense recovery from investors by using third parties, although expectations were higher for movement over time as providers deepen and fund managers achieve clarity from their investor base and legal agreement review.

23 CONFIDENTIAL AND PROPRIETARY

Summary of Industry Operational Grievances / Issues (Prior Content)

Tabular Results of Top Three Operational Challenges (by Peer Group)

Appendix




Key Operational Challenges and Industry Grievances

Operating Challenges / Industry Grievances (R/E Inv. & Funds Mgmt.) A bewildering array of evolving industry standards creates challenges for data standards and consistent industry definition sets or benchmarking

Data Standards

Operational Challenge Industry Grievances or Issues

There are a variety of evolving industry standards – depending on scope (i.e. accounting, tax, reporting, valuation, etc.); however no uniformly accepted data definition set and consistent benchmarking. Accounting treatments

GAAP, FASB (13, 141, 157, 159, etc.) IFRS

Tax treatments & practices

Standard & influencing bodies

NCREIF, NAREIT, NAREIM INREV, EPRA OSCRE, PISCES ALFI

Valuation mechanisms

Indexes Lease-based DCFs

Performance measures & reporting

NCREIF, etc. AMIR, AMIR Gibson IPD

1


Key Grievances and Operational Challenges

Operational Challenges & Industry Grievances (R/E Inv. & Funds Mgmt.) Data management challenges pose one of the largest time drains of highly paid fund management talent, suggesting an opportunity for data warehousing and management

Operating Challenge Industry Grievances / Issues

Data Management (Collection/Ware-housing and Mgmt.)

Processes for collections and management of data which worked on small scale are simply inefficient given size of industry

Talented, highly paid real estate personnel spend too much time chasing and inputting data.

Credibility of data used to manage investments and report to investors is too reliant on manual data entry with no (or limited) repeatable controls to assure consistent treatment of the data.

Fund managers and their operating partners use an array of financial reporting and property management systems.

Systems include: MRI, Yardi, CTI, JDE and other systems

Fund managers have to extract select information to run high level portfolio reports to measure asset and fund level performance

Collecting and processing information from operating partners is typically inefficient and cumbersome, with little real protocols followed.

Complications / complexity stems from fund manager receiving data from multiple heterogeneous sources (and systems) that don’t use same data process, data requirements and /or data definitions.

Data consolidation and data integrity issues are common

Principally due to manual consolidation of reports to portfolio level reports;

Very little time for quality data analysis as majority of time in compilation

2


Key Operational Challenges and Industry Grievances

Operational Challenges / Industry Grievances (R/E Inv. & Funds Mgmt.) The back-office support environment is woefully under-equipped for the significant growth in number of funds and assets under management

Operational Challenge Industry Grievances / Issues

Lack of integration, along with a proliferation of manual processes foster complexity, threatens data integrity

Manual processes are costly. The cost of the time and resources required increases operating expenses and impacts the organization’s ability to meet growth targets and focus on its core business – delivering financial returns to its investors

Business processes are often inconsistent at the property level Limited to nominal sharing of industry best practices in any meaningfully coordinated

way at the industry level

Growth in number and complexity of legal entities based on fund structures and other factors has resulted in varying processes, policies and use of systems across the fund manager organization with increasingly impacts the ability of the organization to effectively report on critical information

Dissimilar and manually intensive accounting, financial reporting and analysis processes for fund operations impact the visibility across the portfolio / fund / firm’s overall holdings. As a result, interaction with and responses to joint venture partners, investors and analysts (if public) is affected.

The industry must now manage risk – real and perceived – much more aggressively. The loaded people cost (including hiring, training, retention and management) to support the asset (risk) management function has become a large operational expense.

Return pressures over the past few years have caused more demands from investors on the fund manager for greater transparency

Operational Processes & Hand-offs

3

Complexity in Financial Accounting / Investor Reporting

4

Portfolio Risk Mgmt. / Reporting / Transparency

5


Ranking of top three issues by fund manager size (Tabular format) ISSUE RANKING BY FIRM SIZERANKINGS PER ORIGINAL CATEGORIES

1 2 3 4 5 NA 1 2 3 4 5 NA

Data Standards

Data Mgmt.

Operational Hand-offs/ Processes

Complexity: Fin'l Acctg. & Reprtg

Port. Risk Mgmt, Reporting & Transparency

No Response

/ Issue TotalData Standards

Data Mgmt.

Operational Hand-offs/ Processes

Complexity: Fin'l Acctg. & Reprtg

Port. Risk Mgmt, Reporting & Transparency

No Response /

Issue TotalTotal Distribution (16)Control check by count Ranking of 1 0.0% 43.8% 6.3% 43.8% 0.0% 6.3% 100.0% 7 1 7 1 16

Ranking of 2 6.7% 33.3% 6.7% 0.0% 40.0% 13.3% 100.0% 1 5 1 6 2 15Ranking of 3 0.0% 12.5% 6.3% 43.8% 6.3% 31.3% 100.0% 2 1 7 1 5 16

Percentage by Firm SizeLarge Firms (7) Ranking of 1 0.0% 42.9% 14.3% 42.9% 0.0% 0.0% 100.0% 3 1 3 7

Ranking of 2 0.0% 42.9% 0.0% 0.0% 57.1% 0.0% 100.0% 3 4 7Ranking of 3 0.0% 28.6% 0.0% 28.6% 14.3% 28.6% 100.0% 2 2 1 2 7

Medium Firms (5) Ranking of 1 0.0% 80.0% 0.0% 20.0% 0.0% 0.0% 100.0% 4 1 5Ranking of 2 20.0% 20.0% 0.0% 0.0% 40.0% 20.0% 100.0% 1 1 2 1 5Ranking of 3 0.0% 0.0% 0.0% 60.0% 20.0% 20.0% 100.0% 3 1 1 5

Small Firms (4) Ranking of 1 0.0% 0.0% 0.0% 75.0% 0.0% 25.0% 100.0% 3 1 4Ranking of 2 0.0% 25.0% 25.0% 0.0% 0.0% 50.0% 100.0% 1 1 2 4Ranking of 3 0.0% 0.0% 0.0% 50.0% 0.0% 50.0% 100.0% 2 2 4

COUNT DISTRIBUTIONPERCENTAGE DISTRIBUTIONCATEGORY REFERENCE NUMBER CATEGORY REFERENCE NUMBER

re fund manager market validation interview summary feedback final

Business

software market firms

services market

market depth

real estate fund managers

key challenges

funds management operational

software tools

bpo solutions