Doug Rowlands, Head of the IPD Multi-national Team, explains that the IPD Pan- European Funds Index project is about to bear fruit. On March 16th 2012 IPD will be releasing a brand new Pan-European Funds Index, for the first time capturing the performance of funds devoted to investment across the continent. This Index will measure full net asset value-based fund performance, as received by the investors in the funds covered, and will represent the first benchmark for this kind of fund with full analytical capacity.
Unlisted Pan-European funds have grown rapidly since the mid-2000s, reaching a net asset value (NAV) of around €8bn by the middle of 2011. Although their scale remains small compared to the US Open End Diversified Equity Fund (ODCE) market and the UK Pooled Property Fund market, they are nevertheless an increasingly important route by which global investors can access European real estate in a relatively efficient way.
One of the main rationales behind the creation of pan-European funds is that diversification across markets can deliver stronger risk-adjusted returns than countryspecific exposure. Tracking performance at the level of the fund and the asset enables investors and managers to substantiate this rationale. This information also enables important investment themes to be addressed such as the appropriate exposure to different markets at different times, and the number and value of assets that are required to create effective diversification across markets.
Andrew Grigson of Pramerica Real Estate Investors, who are supporting the index project, believes that “a commitment outside of an investor’s home market places a greater due diligence burden on the investor and the manager alike. In addition to the standard points of reference such as manager track record, fund strategy and basic performance analysis, an investor will want to understand how the behaviour of the potential market differs from a domestic choice, as well as understanding the impact that this might have to their long term return on a risk adjusted basis.”
The IPD Pan-European Funds Index, which will include 16 separate funds, was developed through 2011 in collaboration with leading global fund managers. IPD was already collecting data on the majority of the vehicles concerned, either at fund or portfolio level, and a meeting with the managers on 23rd June 2011 generated considerable enthusiasm for the plan to bring together fund and property performance in an integrated structure. This led to the formation of an index design group which formulated index conventions, defined reporting outputs, and planned a marketing strategy for the project.
This new index from IPD differs from the traditional offerings from other sources of European real estate trends such as Preqin, INREV and IPD’s earlier European PPFI by focusing purely on a discrete group of vehicles with a Pan European mandate rather than a basket of vehicles that invest either nationally or cross border within the region.
In order to qualify for inclusion in the index, funds must have a mandate to invest in three European regions, be open-ended, and have a level of leverage no greater than 60%. The funds are also required to be valued in line with RICS Red Book guidelines on a quarterly basis by a third party appraiser, as well as having their underlying property assets measured by IPD.
Contributors to the index will receive a licence, allowing them to quote IPD Pan- European Index returns alongside their own fund’s performance, as well as a detailed spreadsheet setting out ‘market’ statistics on all of the Pan-European funds in the sample. In addition IPD will provide a quarterly benchmarking report on each of the portfolios contributing to the index; one of the most attractive aspects for participants in the service as no reporting was previously available to this frequency. And at the end of the year an annual benchmarking report will be produced for each fund, setting its performance against the IPD Pan-European Universe, a larger sample of properties from all IPD’s national market databanks.
In line with the standard for IPD benchmarking reports, quarterly Pan-European benchmarking will incorporate a full attribution analysis based on a geographical segmentation for the continent. This will allow pan-European fund managers to assess the impact of the specific strategies they have employed, as well as identifying tactical stock selection effects.
IPD plans to undertake various research initiatives on Pan-European fund investment through 2012, in collaboration with a steering group of six leading global investment managers: CBRE Global Investors, Invesco Real Estate, Pramerica, Tishman Speyer, UBS Global Asset Management and Russell Investments; Other contributors to the project are: Aberdeen Asset Management, Aviva Investors, Fidelity, Hines, Morgan Stanley, Prologis, PRUPIM, Rockspring and Standard Life Investments.
The research programme will look in detail at the performance trends of these diversified portfolios, placing them in the context of other performance series, both for real estate and for other asset classes. This will shed light on the suitability of Pan-European funds for global investors, and their performance compared to other regional markets around the world. It will also be possible to make a detailed investigation of the impact of cash holdings, fees and leverage on the performance of these funds, analysis for which the data sources did not previously exist.
The Pan-European Property Fund Index results will be launched at a breakfast event on 27th March in London for more details and to register please visit the IPD Events website.
Source: IPD |
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