INREV has launched an analysis framework which will support the understanding of fund style and lead to a practical style classification tool for the non-listed property funds industry.
The principles of the INREV Real Estate Fund Styles Framework provide a basis from which to analyse the contribution of risk factors when determining whether a real estate fund is core, value added or opportunity.
These risk factors include fund activity, leverage, and diversification.
Asli Ball, GIC Real Estate and member of the INREV Styles Working Group, said: "The framework defines style as a "bundle of risks" and then identifies the most important of the quantitative risk factors associated with determining whether a fund is core, value added or opportunistic."
The development of the framework was led by the INREV Styles Working Group and included consultation with members through a white paper release last summer.
The next step will be for INREV to test these risk factors which are set out in the INREV Fund Style Sheet. A pilot group of fund managers will be asked to submit data on their vehicles to allow INREV to undertake an analysis of the relationship between risk factors, current style classifications and the launch date of funds.
"We need to be able to determine how relevant the risk factors are and whether they have to be weighted to reflect their relative importance," said Ball.
INREV is aiming to identify clusters of funds that share similar characteristics and therefore should belong to the same style group. More importantly, it also wants to identify those whose characteristics are at odds with typical funds in that group.
This analysis will lead to a practical classification tool for the industry as typical characteristics for the three styles are expected to emerge from the analysis. This tool will then replace the existing INREV style framework, which uses the two measures of target leverage and target internal rates of return to classify non-listed property funds.
Timo Löyttyniemi, Managing Director, The State Pension Fund Finland and member of the INREV Management Board said: "The framework takes a long-term analytical approach to defining style but this will ultimately lead to the development of a more enduring classification tool as well as improving the industry's understanding of the levels and types of risk that should be associated with each style."
Source: INREV
