This article was originally published by React News.

‍

There is no way to sugar coat it, Real Estate has had a tough 12 months. Re-pricing is taking place across sectors, as both risk-free rates and debt costs increase against the backdrop of a deepening UK and European economic crisis. Several open-ended funds have gated redemptions as a result of investors withdrawing capital to rebalance portfolios, and we have witnessed first hand some fundraisings being postponed, with managers instead choosing to focus on the asset management of their existing portfolios.

‍

However, we are starting to see signs of green shoots. Last week the Bank of England governor, Andrew Bailey, said “a corner has been turned” on inflation, and there is a general expectation of a shallower recession than initially forecasted. In real estate, occupational markets in the UK and Europe have remained stable, as pandemic-induced vacancy rates continue to decrease, and although we have not yet seen a return to pre-pandemic levels, the demand for better quality space means that prime assets in particular will continue to demonstrate growth. While transaction volumes are down there is reduced price discovery, although we know that a number of value-seeking managers are keeping an eye on the UK market ahead of Q4 valuations coming through (including those we have spoken to from the North American markets), and we expect transaction activity to increase as a result.

‍

Speaking to our clients, we are increasingly optimistic about the Real Estate sector as 2023 progresses. A number are in the process of planning new funds to raise institutional capital in the spring. While many of these are successor funds, we have seen some managers consider new strategies, focusing on high conviction sectors such as healthcare, life sciences, digital infrastructure and student accommodation, all of which are benefitting from clear structural tailwinds. In the logistics and residential sectors, we have seen strong yield compression, but these sectors continue to have solid potential for rental growth, and development strategies in these sectors are still attracting fresh capital. From a fundraising perspective, we know anecdotally that several large institutional investors are reducing their direct Real Estate strategies in favour of indirect programmes with blue chip managers, and in the UK many pension funds may quickly find themselves underweight in private markets. Finally, the trend of North American fund managers looking to Europe for capital has continued, particularly as many US institutional investors found themselves fully allocated to private markets by the autumn of 2022, and we expect to see more of the same throughout 2023.

‍

Outside of blind-pool fundraising, we have seen a trend towards JVs and clubs from some of the large pension and sovereign wealth funds, who continue to seek out sector specialists in the UK and Europe. A number of such deals have made headlines of late, such as Greystar and GIC’s acquisition of Student Roost, and Longfellow’s life sciences JV with PSP and Norges.

‍

More widely, we continue to see the impact of the Sustainable Finance Disclosure Regulation on real estate funds, with the level 2 Regulatory Technical Standards being introduced on 1 January. Several of our clients have launched or are launching funds classified as Article 8 or 9 under the regulation, although how “sustainable investment” should be defined is still up for debate, with no clarity forthcoming from the European Commission. We believe that ESG will continue to play an important role in the real estate industry, and funds with strong ESG principles will prove popular as institutional capital returns to the asset class.

Langham Hall is pleased to announce the promotion of three senior professionals to the level of Partner. The promotions are effective January 1, 2023, and further reinforces Langham Hall’s plans for growth across all our jurisdictions.

Listed in alphabetical order:

‍

Eddie Lam (Hong Kong)

Eddie has been with Langham Hall since 2012. He leads the Asia-Pacific fund administration and accounting services with vast experience advising clients on all aspects of fund operational matters.

‍

Vincent Ng (Hong Kong)

Vincent has been with Langham Hall since 2010. He leads the IT and compliance system development for the Asia-Pacific business, is actively involved in client on-boarding, acts as a client advisor to problem solve operational issues and works closely with international legal counsels on LPA matters.

‍

Sara Zhang (Hong Kong)

Sara has been a key member of the Hong Kong team for over 10 years. Her enthusiastic BD and management skills have helped to successfully develop Langham Hall’s specialised fund administration service business in Asia Pacific.

‍

Rob Short, Managing Partner said: “Our newest partners are a talented group who have demonstrated their broad industry knowledge, dedication to clients and commitment to strengthening Langham Hall’s global presence. It gives us great pleasure to introduce them to the partnership and we wish them every success.“

‍

In addition to the three partners named above, Langham Hall has promoted a total of 131 colleagues across its global offices at the end of 2022.

On 1st August 2022, the Register of Overseas Entities came into force via the new Economic Crime (Transparency and Enforcement) Act 2022 (‘ECTEA 2022’).

‍

The register directly impacts anyone using offshore entities to hold UK land or property, including those in Jersey, Guernsey, Luxembourg and other commonly used jurisdictions. Each of these entities will need to register with Companies House to obtain an Overseas Entity ID (‘OE ID’), with the deadline for registration falling on 31st January 2023.

‍

For more information on the practical implications and requirements, please see our ECTEA 2022 Client Briefing. Most notably, however, anyone not complying with the registration requirements by the 31st January deadline can face criminal sanctions, including fines of up to £2,500 per day as well as a prison sentence of up to 5 years. In addition, the overseas entity will be restricted from buying or disposing of the land or property.

‍

Langham Hall was one of the first to register as a verification agent and we provide a full service covering the independent verification process, the overseas entity registration and the annual update. We have seen high demand for this service and expect demand to increase as we get closer to the deadline.

Langham Hall is an award-winning global provider of fund administration and AIFMD services to top tier fund managers. To hear more about how we can help, please do get in touch with a member of our team.

‍

Fund, corporate and transactional structuring is often complex, with tax considerations playing an important role throughout. The more tax a company pays, the lower the return to shareholders. Historically, this resulted in certain countries using low tax rates to attract international business.

‍

Tax treaties between jurisdictions have over time been implemented and updated to counter “treaty shopping” and aggressive tax mitigation schemes and to more fairly apportion taxable revenues across countries. However, to date, tax treaties alone have not solved these issues to the satisfaction of the G7 nations.

‍

BEPS & ATAD

‍

The Organisation for Economic Co-operation and Development has promoted a series of measures over more recent years, notably Base Erosion and Profit Shifting (‘BEPS’) and the Anti-Tax Avoidance Directives (‘ATAD’). These measures were primarily aimed at large corporates who have been subject to negative publicity due to aggressive tax planning. However, the funds industry has also benefited from tax treaties and tax mitigation structures to limit tax leakage and is also impacted by these initiatives. Alternative investment funds often use holding companies and other complex structures for a variety of reasons including segregating or limiting liability, financing, disposal planning and, historically, tax mitigation. Access to treaties or directives is often helpful through holding companies because withholding taxes and/or in some cases capital gains taxes, will be applied predictably and efficiently by the relevant jurisdiction.

‍

BEPS, ATAD I and ATAD II have in effect imposed certain minimum substance requirements on companies wishing to benefit from tax treaties. The EU’s most recent proposal, Anti-Tax Avoidance Directive III (‘ATAD III or the ‘Draft Directive’), further clarifies and extends these substance requirements. It marks the next step of the European Commission’s vision to provide a fair and sustainable European business tax system and to support the economic recovery from the pandemic and adequate public revenues for Member States. ATAD III will, if implemented in its current form, result in the benefits of European Directives and also the benefit of double tax treaties being denied to EU-based holding companies failing to meet minimum substance requirements from 2024.

‍

The Draft Directive

‍

Per the Draft Directive, the provisions apply not just to equity holding companies, but to holding companies of all forms of passive income including income from debt, IP and real estate. Whilst there are no material additional infrastructure requirements in ATAD III for multinational groups, the disclosure and reporting requirements may result in fund managers reassessing their operating models.

‍

The Draft Directive requires companies that, during the last two tax years, predominantly derived passive income (e.g., interest, dividends, royalties) or predominantly held real estate and/or shares, and that meet some other tests to report substance-related information to the tax authorities of their residence state. If an entity fails to meet the minimum substance requirements, it will be considered as a “shell entity” and any tax benefits otherwise available in the Draft Directive will not apply.

‍

The Draft Directive outlines three cumulative “gateway” criteria to identify whether an entity is at risk of being a shell entity:

• the entity mainly derives passive income (e.g., interest, dividend) or predominantly holds real estate and/or shares,
• the entity is engaged in “cross-border activities”, and
• the entity (partly) outsources its own administration and decision making.

An entity meeting each of the criteria will be considered “at risk” and will be required to disclose and document its substance in its annual tax returns by providing information on its premises, bank accounts, local director(s) or employees. This represents an extension of the disclosure and reporting requirements.

‍

If substance is not properly demonstrated, the entity at risk will be deemed to be a shell company and will therefore not be entitled to receive a tax residency certificate. As a result, the entity may not be entitled access to double tax treaties and/or EU Directives, which may result in a higher tax burden, particularly if the entity derives income from the EU or pays income to EU investors.

‍

It continues to be the case that funds, and fund managers ought to approach the holding company question from the starting point of where the key decision makers for the holding company are, or will be, located, rather than which jurisdiction gives the best tax result. Fund managers need to be fully prepared for any potential changes and new compliance requirements arising from ATAD III. Many managers have in place significant and robust infrastructure in the jurisdictions that their holding companies are established, so may not in practice need to make many changes to their operating models, however, it may be necessary for some managers to engage (or re-engage) their tax advisors to conduct entity/structure analyses and/or impact analyses to identify any current or future structures that may be impacted by ATAD III.

‍

It remains to be seen how ATAD III will in practice impact on structuring and exactly what level of substance will be implemented by fund managers. We predict that many will increase their local presence, by for example increasing headcount and office space, and when finalised it is certain that ATAD III will result in increased focus on this proper substance by funds, fund managers and the authorities alike.

Mid-market funds continue to raise capital successfully despite recent global events and looming macro-economic uncertainty, which have led to increasing signs of an industry-wide slowdown in fundraising.

‍

In addition, some of the big names in private equity are currently absorbing investors’ capital with new mega funds, including Carlyle Fund VIII, which aims to be the biggest PE fund ever raised at $27bn. However, despite both these factors, Langham Hall is seeing lower mid-market and mid-market strategies continue to attract institutional capital, as investors seek exposure to specific industry types or deal sizes. In June, Langham Hall’s Luxembourg office saw nine such funds raise an aggregate of €1.5bn of capital. Managers appear to want to raise capital ahead of a summer slowdown despite certain funds closing below their target size in some cases.

‍

Many funds are taking advantage of emerging healthcare, impact and technology investment opportunities. As such we believe there are opportunities for private fund managers to raise and successfully deploy capital in similar sector-specific strategies. Although undoubtedly there will be a few bumps along the way, caused by inflation and higher interest rates as well as the prospect of a prolonged war in Ukraine, there appears to be on-going confidence that private funds will provide exceptional returns to institutional investors in the long-term.

‍

Since opening in Luxembourg in 2014, Langham Hall has grown to 170 people, servicing blue-chip private equity and real asset fund managers from the UK and Europe. Langham Hall is an award-winning provider of Fund Administration, Depositary and AIFMD services to global fund managers. Please contact us if you would like to discuss this topic further.

When you join Langham Hall as a Trainee Accountant you will be given study support towards achieving your preferred accountancy qualification (ACCA or CIMA). Mixing study and full time employment can seem daunting but it is a rewarding challenge that will open career and promotion opportunities and further you knowledge of the field.

‍

We spoke with member of our Real Estate and Private Equity teams who shared their top tips to successfully juggle a thriving career while becoming qualified accountants.

‍

These are their best recommendations.

‍

Work and study tips:

• Create a study plan: This will help you pace your studies. Start as early as possible, ideally immediately after you got your results for the last exam. Have mini deadlines/milestones with what you want to achieve, and leave enough time to practice at least 5-6 past exam papers before the actual exam.
• Condense your notes: It helps to have minimised step solutions for questions with wordy answers but also for tackling the heavy numbers based questions.
• Strategically plan your leave: Book holidays strategically around exam dates, in advance, at the start of the holiday year to allow you enough time for exam practice as well as coordinate with your manager to maintain team deadlines.
• Use resources: Look for past exam questions and resources in your accountancy body’s webpage. Practice past exam papers closed book and to time, just like in real exam conditions. This will help you improve your time management and question answering technique. Read the technical articles as these will help you get a feel for what the examiner is looking for and can sometimes provide hints on topics which will be included in the upcoming exam.
• Understand the marking criteria: Mark your mocks using the marking grid from your professional body’s website (if available) and spend time reading the model answers from ACCA/CIMA website for the questions where you did not score well. This can highlight patterns in questions and where you can score the most marks.
• Pre-exam: Check exam registration deadlines, exam dates and locations. Ensure you are well rested.
• During the exam: Spend a few minutes at the start of each exam planning how much time you allow for each question (proportional to the number of marks per question). Be tactical with your time by tackling the questions that you are most comfortable with first and move on to the next question when you run out of time. On the day of the exam, it is not what you know/what you have read that increases your odds of passing, it is what you actually put down on paper under tight time conditions that makes the difference.
• Ask if you don’t understand: Langham Hall is full of people that have been in your position, there will always be people happy to help.

If you are interested in a career at Langham Hall, reach out to our HR team and check the latest vacancies here.

You’re finishing university and are considering what career path to take. You’re interested in financial services, investment, accountancy, alternatives assets. So what’s next?

We spoke to Lily Davis who joined the Langham Hall Graduate Programme in 2020 in the Private Equity team to share her experience and what it’s been like to start her career as fund accountant.

‍

What is your educational background?

‍
I graduated from the University of Birmingham in summer 2020 where I gained a First in Modern Languages (German and Spanish) and Business Management. At A Level, I studied Maths, German and PE.

‍

Why did you apply to join Langham Hall’s Graduate Programme?

‍
Having not studied finance and accounting at university, I loved the fact that Langham Hall’s Graduate Programme offered training towards becoming a fully qualified accountant. The fusion of practical and theoretical learning was something which piqued my interest in the scheme. The chance to work for a highly reputable firm and develop personal skills such as leadership and communication was also something which drew me to Langham Hall.

‍

How have you found starting your career in fund accounting? What kind of tasks have you completed / do you complete on a daily basis?

‍
Since joining in September 2020, I have had exposure to a huge range of tasks within fund accounting; bookkeeping, management accounts, payments, investor queries. Additionally, I have now successfully completed an audit, which provided a new challenge that I enjoyed undertaking. Having spent time preparing these key deliverables, I am now gaining experience in the review process; a rewarding task, allowing me to see how much I have learned within the last year and a half. This progression has been aided by members of my team who have supported me and my ambitions, and I have been given opportunities to broaden my horizons within my team, and on a larger, company-wide scale.

‍

What have you enjoyed the most about working at Langham Hall?

‍
I have always loved learning and working in a team. At Langham Hall, I am constantly learning and developing skills, while also working alongside a group of likeminded, aspirational people who are incredibly approachable and helpful. These factors keep the work interesting and enjoyable.

‍

How do you feel Langham Hall has encouraged your professional growth?

‍
I have been given many opportunities to develop professionally since joining Langham Hall. There are always chances to take on extra responsibility, either within your team, through having oversight of more tasks, or within the broader company, where you can complete extra trainings or join the various committees. The range of clients to work on also presents the opportunity to learn about multiple investments and the way the different Funds operate.

‍

Langham Hall offers study days and all necessary material for the accounting exams. Juggling work and study is arguably the most challenging aspect of the role, but one which is also incredibly rewarding and in-line with personal aspirations to become qualified. The tasks within my work have helped consolidate my studies, where I am able to put theory into practice.

‍

Where do you see yourself in 5 years’ time?

‍
In 5 years, I will have completed all my ACCA exams and be a qualified accountant. I will have accumulated extensive insight into the behaviour of Funds and successful investments. I plan to use this knowledge to manage my own team of people and find new challenges through which I can develop and progress professionally.

‍

What’s the best piece of advice you could give to someone who’s looking to apply to a Graduate Programmes?

‍
Be open to new learning experiences and embrace every opportunity. We learn most from asking questions and making mistakes, so have confidence in your intellectual aptitude and be inquisitive, because there’s always something to learn.

‍

If you are interested in a career at Langham Hall, reach out to our HR team and check the latest vacancies here.

‍

The rules for UK REITs were first introduced in the Finance Act 2006, and since then the number of UK REITs has grown to more than 100. In this time however, the real estate sector has evolved, and the number of large institutional investors in REITs has increased, meaning elements of the current regime have become outdated whilst creating an unnecessary cost and administrative burden for managers.

Following the 2020 Budget, HM Treasury launched a consultation on tax treatment of asset holding companies (‘AHCs’), which included REITs and their use by real estate fund managers. Following the conclusion on 23rd February 2021 of two consultations relating to AHCs, HM Treasury announced changes to the REIT regime aimed at enhancing the attractiveness of the UK for real estate investment.

The changes include amendments to the tax rules applying to REITs, and take effect from 1st April 2022.

‍

What are the changes?

‍

The proposed changes to the regime include amendments to the listing requirements, as well as changes to the tax rules for REITs. Most notable changes include:

• Listing requirement - Removal of the requirement for REIT shares to be admitted to trading on a recognised stock exchange in cases where institutional investors hold at least 70% of the ordinary share capital in the REIT.
• Equivalence to a UK REIT - Relaxation to the definition of an overseas holding structure to be equivalent of a UK REIT, so that the overseas entity itself, rather than the overseas regime to which it is subject, needs to meet the equivalence test.
• Holders of excessive rights - Removal of the ‘holders of excessive rights’ charge, where property income distributions (‘PIDs’) are paid to investors with a greater than 10% holding. This rule will be relaxed for shareholders entitled to gross payment of distributions (such as UK tax resident companies or pension funds).
• Balance of business test – if group accounts for a period show that property rental business profits and assets comprise at least 80% of group totals, a REIT will not have to prepare the additional statements which would be required to meet the full test. Further, non-rental income generated by a REIT in complying with certain planning obligations can now be disregarded in all parts of the balance of business test.

‍

What does this mean for fund managers?

‍

For real estate investors, the REIT regime has long been an attractive way to hold income generating property in a tax efficient manner. However, to date, the listing requirement has caused an additional burden for those managers looking to utilise the regime for the holding of income producing assets. More recently we have seen some managers using The International Stock Exchange for listing of REITs, where there is no free float requirement, but the listing requirement still remains.

Key benefits of the new UK private REIT:

• In the UK, a REIT is not taxed on income and gains from property rental business, with the tax being paid by shareholders upon distribution instead, the new rules will make it far easier for private fund managers to utilise a UK REIT to both attract new capital and also to hold real estate and distribute income in a tax efficient manner.
• The REIT brand is well recognised by global institutional investors, with around 40 countries globally currently having an equivalent regime.
  Removing the listing requirement will also reduce the administrative burden placed on managers and their service providers, so these structures will have a lower operating cost than listed REITs.
• In addition, REITs will qualify as a “relevant qualifying investor” under the new Qualifying Asset Holding Companies rules, making the REIT increasingly attractive for investing in non-UK assets whilst retaining structures onshore.

There are trade-offs to consider:

• Reduced liquidity when compared with e.g., a main market listed REIT, but for many institutional investors that routinely invest in closed-ended funds, this will be part and parcel of doing business in real estate.
• Managers also need to be aware that whilst a private REIT has a reduced operational burden when compared to a listed REIT, the REIT rules still need to be adhered to, for which specialist third party tax advisors are recommended.

How can Langham Hall help?

‍

Langham Hall remains the largest independent administrator of Real Estate funds in the UK, working with both listed and private REITs. We are able to provide a full suite of administration and AIFMD services to these structures, including REIT administration, accounting, depositary and host AIFM services.

With these new changes coming into effect on 1st April, we expect to see a rise in the number of managers utilising the new REIT regime, and indeed we are already working with several clients looking to take advantage of this.

Deciding what path to take after school can be a daunting decision, do you continue onto a Sixth Form, go to college, or consider an apprenticeship?

Apprenticeships are an exciting option, where you get hands-on training while simultaneously putting the skills you learn into practice.

As we celebrate National Apprenticeship Week 2022, we spoke to Samuel Highmoor, a trainee accountant undertaking an apprenticeship with our Internal Accounts team, whilst completing his AAT - Assistant Account Apprenticeship Level 3. We asked Sam to shares his experience and recommendations to anyone considering taking this route into employment.

‍

Q: Why did you decide to do an apprenticeship?
After being at university for two years, I wasn’t enjoying my course and didn’t see myself finishing it. I started an apprenticeship as this allowed me to carry on learning while entering the job market. This was good for me as I feel I am quite a practical person, all the things that I learn on my course apply back to something I am working on.

‍

Q: What kind of tasks have you completed / do you complete on a daily basis?
I run timesheet and debtors reports to help senior management see how the business is running. On a weekly basis, I process the payment run for suppliers and deal with administrative task on our Practice Management Software. I also do the bank reconciliations and have started taking on parts of management accounts preparations.

‍

Q: What has been your biggest challenge during your apprenticeship so far?
My biggest challenge has been managing my time and organisation of my workload. This includes learning how to create effective plans so that deadlines are met, whilst communication with my team on my current capacity to take on new work. This is an important skill I’m learning early on in my career as I continue to take on more responsibility. Being able to share my experience with my co-workers has meant that I’ve gained an insight into their work styles to help me develop my on working and organisation method. These are valuable skills that you learn outside of a traditional study environment.

‍

Q: What do you hope to be doing in five years’ time?
In 5 years, I hope that I am fully qualified as an accountant.

‍

Q: What’s the best piece of advice you could give to someone who’s looking for an apprenticeship?
I would highly recommend an apprenticeship, as you get both an education and work experience all in one. Apply to as many places as possible and don’t be afraid of being rejected. The right company and opportunity for you is out there. Find a team where you can learn and grow.

‍

Langham Hall offers a diverse range of apprenticeships spanning from our operations and compliance team to internal accounts and Technical/Systems. We are keen to widen the range of departments that support apprenticeships as the development of young talent ensures we are training staff from the bottom up. Team growth and succession planning are key to our talent strategy and apprentices are become increasingly important in supporting this aspect of our growth plans.

At Langham Hall apprentice’s sign-up to an 18 month or 3-year apprenticeship depending on the level of qualification they are completing. They are assigned to a specific department or business area where their job role directly relates to their qualification. Each apprentice has a mentor to support them through their qualification and study leave to allow time to complete their training programme.

If you are interested in our apprenticeship opportunities, get touch with our HR team.