The investment industry fulfils two basic functions. Firstly, it brings together investors holding capital with managers able to profitably deploy that capital. Secondly, it provides a market where investors can transact with one another.

The means by which the real estate industry fulfils these two functions has been fashioned by events over a long period of time: the decline of endowment funds and defined benefit (DB) pension schemes, the rise of defined contribution (DC) pension schemes, the passing of legislation to create REITs, changes to tax laws to create ISAs, the use of limited partnerships and other structures to create new vehicles, the rising importance of cross-border investment etc.

Throughout this process the industry has responded to changes in the wider financial market to deliver practical fund solutions to investors based on the technology, legislation and regulation existing at that time.

Whilst the industry focus on portfolios has delivered diversification, it has also diluted a key attraction of real estate to investors: the sense of ownership. The focus on funds has inevitably also created conflicts between the manager and the investor when the incentive to build funds under management has impacted the portfolio characteristics. An individual property exchange removes these conflicts, allowing investors to construct their own portfolios, based on their own views for individual locations, buildings and occupiers, to meet their specific investment goals. These returns may not just be financial but also environmental, to create a more sustainable urban environment.

This would also free asset managers from other considerations to use the exchange to raise capital directly from a growing pool of wealthy sophisticated investors to fund their skills in delivering strong returns.

This report invites the reader to think of this industry as it could be, not as it is now, to remove frictions, costs and conflicts in connecting investors with managers.

Read the full report here: The case for a securitised real estate exchange platform for single commercial property assets.