EUROPE - Differences in geography and leverage levels, as well as currency movements, meant European non-listed real estate funds experienced a wide range of performance levels in 2008, according to International Property Databank (IPD).

The inaugural bi-annual IPD European Pooled Property Fund Indices 2008 showed total returns in 2008 for 203 predominantly core and value-added funds averaged -7.4% in local currencies and -14.8% for euro-denominated investors.

These headline figures do not show the wide variation of performance across the sector (from -80% to +25%, in local currencies), and UK funds fared much worse than continental funds as higher levels of gearing exacerbated losses.

The impact of a strong euro against sterling during 2008 further diluted the overall performance of the UK fund contingent.

IPD analysed 103 of the funds in the sample, whose underlying asset performance is measured independently, to examine the differences in performance at the property level and fund level.

The performance of the direct real estate held by this sample was -19.9%, but the fully diluted net asset value (NAV) performance of the same group was -24.6%.

This pattern was consistent across both the UK and continental Europe, IPD said, with returns higher at the direct property level than at the vehicle level, reflecting the combined effect of fees and debt.

The most significant cause of the overall disparity between direct property and vehicle level performance was gearing, with fund comparisons showing that the higher the level of debt, the greater the difference.

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