Revised fund styles classification gives greater clarity to non-listed real estate funds (EUR)
Thursday 16 February 2012
INREV has refined and updated the INREV Style Classification following its initial launch in March 2011, providing investors with even greater transparency. The latest iteration better reflects the true nature of a core fund with leverage; and clearly marks the difference between this fund style and that of a value-added fund.
The move comes on the back of feedback from INREV members and will ensure that the INREV Style Classification meets its objective of being ¡®robust, reliable and enduring¡¯.
¡°We¡¯ve evolved the INREV Style Classification because it¡¯s the right thing to do. In March last year we introduced the new classification. Response from the industry was on the whole positive, however feedback from some members indicated concerns. We¡¯ve acted on these concerns and adapted the model to better reflect the realities fund managers face,¡± said Matthias Thomas, INREV CEO.
This refinement of the style classification provides a more detailed and clearer foundation for investors and fund managers to distinguish between different investment strategies. The classification of core funds is now based on the following three operating variables:
- Target percentage of non-income producing investments (¡Ü15%)
- Target percentage of (re-) development exposure(¡Ü5%)
- Target return derived from income (¡Ý60%)
The loan-to-value consideration is no longer being taken into account for classifying funds as core. INREV has reviewed the leverage parameters to address the issue raised by some fund managers that a 40% ceiling was impractical for core European funds. This ceiling limited the flexibility required to pursue currency hedging and/or to explore different tax structures. Under the refined classification, leverage parameters divide core funds into two sub-categories:
- Less than or equal to 40%
- More than 40%
¡°These adjustments are subtle but significant. They provide a further layer of information around core funds for investors, and greater clarity on the leverage issue for fund managers,¡± concluded Thomas. The classification for value-added and opportunity funds remains unchanged.