INREV has launched a real estate funds of funds directory, which gives a comprehensive overview of this rapidly evolving sector of the non-listed property vehicles investment world for the first time.
The directory comprises of 36 funds of funds with an approximate total target equity of 10.9 billion. Six of these funds did not give a target equity figure, so INREV estimates the total size of the database to be around 12 billion. INREV also estimates that this database covers 80% of the market in Europe and the majority of the Asian funds of funds, but that the number in the U.S could be significantly higher.
Of the 10.9 billion, around 68% or 7.4 billion is targeting Europe, 17% or 1.8 billion is looking at Asia, while 4% or 0.4 billion is allocated to invest in U.S. vehicles. The remainder is targeted at Australia or single country funds.
"The majority of the funds of funds that we have now captured in the INREV database are targeted at Europe as would be expected, but there is also robust growth in Asia. This shows that the Asian investment market is leapfrogging the historical evolution in Europe. Unlike in Europe, where the rise of the underlying non-listed real estate funds was followed by funds of funds, both forms of vehicles are developing in parallel in these emerging markets," INREV Research Director Andrea Carpenter commented.
"The funds of funds targeting Asia tend to be smaller, but the speed at which they are growing is impressive for such a young market," she added.
Some 29 of the funds in the directory are accessible to institutional investors only, while seven are available to both institutional and retail investors. From the total of 36 funds of funds, 11 are currently closed to investors and 25 are still open.
Closed ended funds of funds make up 22 of the total and there are 14 open ended vehicles. On average, they have invested in 10 underlying funds, but the median target to invest in is 14.
The office property sector is the most popular investment area and accounts for 36% of the directory by number of funds, followed by retail at 30%, industrial/logistics at 18%, residential at 9% and other real estate sectors at 7%.
There has been a steady rise in the number of vehicles being launched since the first in 2003, (2004: 4, 2005: 6 2006: 10) peaking at 14 this year. So far, one fund of fund planning to launch in 2008 is included in the directory.
The average target internal rate of return (IRR) is 12.1%, derived from the various investment styles of the underlying funds being invested in. Of the total target equity in funds of funds where managers indicated their investment strategies, 3 billion will target core vehicles, 5.3 billion value-added and 2.1 billion will look to invest in opportunity funds.
Average total gearing for the underlying funds within the portfolios is 56.5%, but additional leverage at the fund of funds level was only reported in six vehicles in the directory.
"For big institutional investors wishing to access niche managers, or smaller and medium-sized pension funds entering the market on a diversified basis for the first time, these vehicles may offer an attractive investment option," INREV Chief Executive Lisette van Doorn concluded.