AIFMD : impact of the governance of real estate funds : case study on risk management

Abstract

This project thesis is the last step in my graduation process and combines my interest for regulation and in particular real estate fund industry. The purpose is to provide a business model for Deloitte Luxembourg in risk management for real estate fund. The report will be divided into three main sections that will describe the Alternative Investment Fund Managers Directive requirements, the risk management process and the valuation method for real estate funds. The Alternative Investment Fund Managers Directive (AIFMD) requirements The introduction of the AIFMD is a result of the financial crisis of 2008 and one of the first concrete measures of the European Commission in order to prevent a new crisis of this scale, focussing on fund managers of alternative investment funds, real estate funds included. In accordance with national laws, the AIFMD introduces unprecedented requirements on corporate governance, especially on risk management at the level of the Alternative Fund Managers (AIFMs). The risk management process These AIFMs uses the requirements of the Directive to rethink the way they align risk management process to the risk profile of their fund, portfolio and assets level. This is accomplished by establishing parameters for risk identification and assessment, controls on risk limits and structure for risk reporting. Link with the valuation model The final step is to incorporate the risk management process with the valuation model. The AIFMD requires the AIFM to provide a proper and independent valuation of their fund. This valuer has to choose among different approaches and one of these is the Discounted Cash Flow (DCF) model is illustrated with the use of leverage.