Investors are beginning to consider liquidation as a fund exit strategy for the first time since 2007 according to the 2010 INREV Fund Termination Study. However, extending the lifetime of a fund remains the most likely strategy, as it has been in 2006, 2008 and 2009.
"This study has revealed an important change in investor outlook but we are not yet seeing a return to the heights of the 2007 market," said Lonneke Löwik, Director of Research and Market Information, INREV.
"Investors have markedly changed their approach to liquidation, looking to review their options earlier in the lifecycle of the fund and expecting fund managers to prepare highly detailed plans for the disposing of assets. They remain cautious and are yet to be convinced that the near future is the best time to realize value."
Recent year's market turbulence has led to earlier discussions, if not decisions on terminations. Resulting in the best possible termination or continuity plan for all parties involved and further highlighting the importance to have a group of like-minded investors with similar investment horizons in a fund.
Today funds investing in the UK are more likely to be liquidated than those in continental Europe, reflecting the more advance recovery in the UK market. Overall interviewees expect the European market to continue to improve, meaning that capital values are expected to increase and loan-to-value ratios will improve helping to solve debt issues faced by funds.
Debt and refinancing issues continued to be rated important in funds due to terminate in 2010, but declined overall in importance compared to the 2009 study.
The study focuses on closed end funds in the INREV Vehicles Database that were/are due to terminate between 2010 and 2012. Information from 39 funds, across 23 fund managers was collected between May and June 2010, representing 24.6 billion of assets under management.