INREV last week published a White Paper, the INREV
Guidelines for a Secondary Market. The objective of the White Paper, together with its recommendations for best practice, is to create a framework by which a secondary market in non-listed real estate funds across Europe could become fully established and thrive.
Limited liquidity has been identified by investors as one of the key reasons that may prevent them investing more in non-listed real estate vehicles. INREV believes that, despite the relatively low demand from sellers for a secondary market currently, the evolution of a more effective and liquid market will become increasingly important as investors increase their allocations to the non-listed sector and market conditions change. For this reason, INREV believes that fund managers should address liquidity issues now.
To assist in identifying the obstacles to liquidity, the INREV Secondary Market Committee has analysed the liquidity provisions of a broad range of funds. These include both open and closed ended funds and range from sector or country specific funds to pan-European funds.
The analysis has identified four key obstacles to a secondary market
developing in most-non listed funds. These are:
- Lack of willing sellers
- Lack of freely available information
- Lack of transparency of valuations and Net Asset Value
- Restrictions on transfer within constitutional terms
Through this consultation the Committee has drafted statements of Best Practice which it will recommend all INREVâs members adopt and, where this is not done, the reasons why not.
The statements have three key elements to them;
- Constitutional terms (covering both managersâ and selling investorsâ rights and obligations)
- Code of Best Practice
- Transparency of base information.
Commenting, Michael Clarke, the chairman of the INREVâs secondary market committee, said: âThis initiative is vitally important for the future growth and development of the non-listed real estate market. Investors want greater liquidity but the only way to achieve this is through the industryâs drive towards transparency which we expect, in turn, to lead to a standardisation of procedure.
âOur consultation has indicated that there is widespread support from both managers and investors for a more transparent market and INREVâs launch of a quarterly index of non-listed funds will greatly support this move.
âWe will now seek responses from managers and investors to our proposed Statements of Best Practice with a view to seeking adoption during Summer 2005.â