The Emerging Role of the Independent Fiduciary for Non-Traditional Real Estate Investments

By Hester, Tom; McMahan, John | Real Estate Issues, Fall 2000 | Go to article overview

The Emerging Role of the Independent Fiduciary for Non-Traditional Real Estate Investments


Hester, Tom, McMahan, John, Real Estate Issues


A recently published survey of pension plan sponsors [1] attempted to make big news of the fact that a number of the plans intended to reduce their respective allocations to real estate investments in the future. What is surprising about the survey to the authors, was the fact that only some 13 percent of those responding indicated that they would reduce their allocations. The authors do not consider the results to be particularly significant, especially when a number of pension plans, including CalPERS, CalSTRS, and New York State Teachers, have recently announced substantial allocation increases to the asset class.

These increases can be rationalized, in part, by pension plans' redefinition of the role of real estate in a multi-asset portfolio. Real estate investments may now include technology-related investments and higher return/higher risk vehicles such as opportunity funds, joint-ventures, development programs, foreign investment, and the like. Pension plan sponsors have recently discovered the value of an independent fiduciary in evaluating these non-traditional real estate investment opportunities.

In most cases, investments of this type are sponsored by firms that are not registered investment advisors. Seeking to provide some assurance that these investments meet minimum fiduciary standards, pension funds are turning to independent fiduciaries to perform due diligence, identify risks, suggest mitigation as necessary, and render overall advice on the desirability of the investment. The independent fiduciary performs the front-end analytical functions that would be undertaken by an investment advisor in a more traditional core real estate investment, and also gives the pension plan sponsor an investment recommendation based on its analysis. The recommendation is possible, and depended upon, because by law the independent fiduciary must be a registered advisor.

EVOLUTION OF THE FIDUCIARY STANDARD OF CARE

The role of the pension fund investment fiduciary was first described in the Employee Retirement Income Security Act (ERISA) of 1974. Under ERISA, a person or firm is deemed to be an investment fiduciary if they make recommendations as to the advisability of investing in, purchasing, or selling securities or other property, pursuant to a mutual agreement between the parties.

This fiduciary standard of care was subsequently refined to establish who would be considered an investment advisor and the level of prudence under which they were expected to act. Initially, investment advisors were required to be commercial banks, insurance companies, or Registered Investment Advisors under the Security and Exchange Commission. This was subsequently modified to allow smaller firms to register with state regulatory authorities. For pension funds desiring additional protection, the Qualified Plan Asset Manager (QPAM) designation was established by the Department of Labor (DOL), requiring certain levels of financial size and assets under management.

TRADITIONAL ROLE OF THE INDEPENDENT FIDUCIARY

ERISA contemplated that the occasion might arise when the DOL, acting through the courts, would be faced with the necessity of replacing the fiduciaries responsible for a pension plan's assets. Since this might take some time, the role of the independent fiduciary was established by the DOL to be responsible for the assets of the plan and its operation until such time as new fiduciaries could be secured.

In recent years, several plans have utilized independent fiduciaries to evaluate situations in which a significant modification was being proposed in the structure of existing investment vehicles. Examples include the sale of plan assets, the rollup of portfolios to create a public company, asset transactions between related plans, and other situations where an independent opinion was required. Investment advisors also have proposed the use of independent fiduciaries in situations where a conflict of interest existed or was perceived to be a possibility. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Emerging Role of the Independent Fiduciary for Non-Traditional Real Estate Investments
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.