A joint consultation has been initiated by real estate associations to help push for more consistent pricing of open-ended real estate funds in Europe.
Launched by the European Association for Investors in Non-listed Real Estate Vehicles (INREV) and the UK’s Association of Real Estate Funds (AREF), the paper is intended to accelerate the debate on a contentious issue that could be holding back the growth of the sector.
The study is expected to examine the main pricing methodologies generally used by market participants and introduces an alternative pricing model that blends the two.
“The ultimate objective is to arrive at generally accepted pricing principles that are easy for both investors to understand and for managers to implement,” the associations said today.
The pan-European open-ended fund sector has been growing recently. According to MSCI’s IPD Pan-Europe Property Fund Index, the value of assets managed by these funds have almost doubled over 15 months – from €9.5bn in June 2016 to €17.5bn in September 2017.
But it is still dwarfed by its US counterpart. The NCREIF Open-end Diversified Core Equity fund index suggests US open-ended property funds managed $181.4bn (€153bn) of assets at the end of October.
Inconsistency of pricing among European funds has been cited as one of the potential obstacles to the European sector’s growth, which could one day match that of its US equivalent.
Writing for IPE Real Assets in 2016, Maurits Cammeraat, outgoing director of professional standards at INREV, said: ”The existence of multiple pricing options is perhaps the biggest roadblock to progress.”
Last year, INREV published an updated report on the topic, Pillars to Ensure Open End Fund Liquidity. At the time, Cammeraat – who is leaving INREV in December – said the most contentious, but crucial, issue was pricing.
“It is hard to fix because it is complex,” he said. “But fix this and much of the rest of the liquidity issue is likely to slot quickly into place.”
Today, Constantin Sorlescu, INREV’s professional standards manager, said: “This initiative marks a significant step forward in the ongoing discussion about open-end fund pricing.
”There’s broad agreement within the industry that we need to go further to establish a more structured and common approach to pricing policies. The paper will unlock greater consistency and transparency in industry practice.”
John Cartwright, CEO of AREF, said: “With this study, we aim to further the understanding of different pricing methodologies and how they can impact open end vehicles.
“It is particularly important to seek some sort of consensus view on this topic when the non-listed real estate industry is becoming increasingly global.”
The consultation will close for responses on January 31, 2018. INREV and AREF expect to publish summarised responses in early 2018.