CLIENT SCENARIO

The diversification and yield enhancement attributes of real estate and private equity have made these asset classes increasingly popular among investors. Yet such investments add a unique layer of complexity to the investor's financial reporting requirements. Across the industry, plan sponsors and investment managers face a common challenge: to maintain and monitor the accounting, performance measurement, portfolio analysis and historic information of expanding private equity and real estate portfolios efficiently and accurately, while managing staffing levels. In most cases, reporting on these assets consumes a disproportionate amount of manpower, demanding specialized systems and expertise. State Street offers a comprehensive solution.

Private Equity:
Valuations are changing substantially and rapidly, with a lack of a standardized industry methodology. Capital raising activity slowed somewhat during the last half of 2001 from its previous record levels, but it continues, while investor allocations to private equity have increased considerably.

Growth of Private Equity Commitments	Strategic Allocation to Private Equity
Use of Portfolio Management System

Real Estate:
With corporate earnings dipping, there is pressure on occupancy and market rent levels. Capital raising activity has slowed and allocation levels have stagnated. Valuation frequencies and the consistency of processes and methods used to update valuations each period are in question. The lack of standardized reporting from opportunity funds poses increasing difficulties for investors.

Institutional investors in these asset classes need information on their entire portfolio that is timely enough to be meaningful when received, and in a format that is consistent across investments. They need to roll-up investment information across the entire asset class portfolio and drill down to the property or company levels. In addition, they need to benchmark their portfolio against others with similar strategies, and to review unique analyses based on market conditions and relative performance. This all has to be accomplished in a timeframe that allows optimal investment, manager, commitment and allocation decisions with the greatest possible degree of objectivity.

Historically, in both real estate and private equity investment marketplaces, investment advisors and consultants have provided performance measurement calculations and evaluation information as the basis for investment advice to their clients. Consultants acquired this information from investment managers based on their relationship with investors. Regardless of this tri-party accord, no standard has emerged for reporting financial information, valuations, performance calculations, or underlying holding financial or characteristic information. Nor are investment (a/k/a/ fund) indices or other benchmarking information widely available.

Increasingly, institutional investors voice a strong desire for reporting standards for real estate and private equity via their respective industry organizations (e.g., AIMR, ILPA, NCREIF, PREA, BVCA, EVCA, NVCA). Benefits of standardization are clear: Transparency, operational efficiencies and enhanced confidence levels among institutional investors in these asset classes. Moreover, standardization lends itself to the use of technology, allowing further benefits in terms of staffing needs, analytical capacity, and scale.

The PrivateEdge team has significant private equity and real estate expertise. We maintain a dedicated group of professionals who are actively involved in industry efforts toward a solution through representation on the AIMR-GIPS Private Equity Standards Development Subcommittee and the REIS Information Standards — Performance Measurement Rewrite Subcommittee.

The Goal

We developed the PrivateEdge^® capability in response to real estate and private equity investors' needs for cost-effective:

• Data collection and verification


• Sophisticated performance measurement calculations and evaluation


• In-depth portfolio and investment analysis


• Impartial investment monitoring


• Timely board reporting


• Broad peer group analysis


• Meaningful attribution analysis


• Robust benchmarking capabilities

PrivateEdge helps relieve clients of administrative burden, while providing quality, timely reporting and analysis of private equity and real estate assets. With Private Edge, we combine technology innovation with the expertise of our service team to deliver the entire spectrum of services, ranging from fundamental reports to full investment monitoring.

The Solution

The PrivateEdge team offers a comprehensive solution to these challenges, bringing to bear a powerful combination of expertise and technology. With extensive experience in the private equity and real estate investment industry, our professionals provide consultative services that can range from executive summary reporting and portfolio analysis to attribution analysis or private equity and real estate investment allocation evaluation and other sophisticated ad hoc reporting.

The group is further equipped with an extremely advanced application designed and developed specifically for real estate and private equity investments and portfolios, complete with an web-based Electronic Data Submission Application (EDSA). The PrivateEdge application is integrated with State Street's custody and accounting system with a real-time automated general ledger sweep. This state of the art model allows us to integrate performance measurement and characteristics reporting with accounting information and financial statement detail reporting using one tool.

Key Benefits

Our client base represents a significant portion of the real estate and the private equity investment marketplace. These investors have chosen State Street's PrivateEdge for its demonstrated ability to deliver the highest quality results cost-effectively. Our powerful combination of application functionality and consultative services provides a set of benefits unmatched in the market:

• Supports clients' focus on their core business, investment management, rather than on data management


• Facilitates decision-making through powerful, timely information complemented by expert consultative service


• Provides 24-hour access to industry expertise


• Creates operational/back office efficiencies


• Provides confidence through objective, independent service backed by State Street's financial stability and commitment