EUROPE – The Association of Real Estate Funds (AREF) has urged the European Commission to keep illiquid real estate funds open to retail investors, arguing that not to do so would reduce options for defined contribution pension schemes.
In a submission to the Commission before the consultation on UCITS VI ended last week, AREF secretary-general Mark Sherwin said constant reinvestment prevented real estate from becoming economically obsolete but that long-term holding periods were inevitable.
He said the liquidity requirements of open-ended funds created a drag on returns and restricted fund managers' ability to manage reinvestment.
AREF's submission said: "There is a cost to providing investors with the freedom to enter or leave funds whenever they wish.
"Some retail investors want to deploy capital for the long term and do not want to suffer the dilutive effect of providing short-term liquidity. The issue is that investors do not have any choice."
It continued: "Currently, retail investors' real estate allocation is restricted to funds providing liquidity and sacrificing performance. Retail investors should be given the opportunity to make an informed choice to sacrifice either one in order to maximise the other."
In a statement, AREF chief executive John Cartwright said that, although regulators have understood liquidity as a proxy for retail investor protection, the cost of providing liquidity often results in lower returns.
"As we see a shift from defined benefit to defined contribution pension schemes, retail investors also need to think about long-term saving strategies with a diversified portfolio that doesn't solely need to focus on liquid assets," he said.
The Investment Management Association likewise supports a passport for funds investing in real estate and other alternatives that are closed-end or with limited redemption rights.
A spokeswoman for the organisation said: "We're not saying that liquidity isn't important, but there needs to be a choice for investors to go into assets that are not liquid."