EUROPE - Approximately €1.1bn of secondary trades were executed in the past 12 months by 18 INREV member funds, with a further €230m of trades in the pipeline, but the prospect of an efficient secondary market for European non-listed real estate funds remains uncertain, INREV members discovered at this week's Mipim convention in Cannes.

The European Association for Investors in Non-Listed Real Estate (INREV) used the event to announce the results of its Liquidity Provisions Study, attracting over 200 delegates keen to learn about the future of secondary trading of stakes in closed-ended vehicles.

However, the study revealed respondents saw the emergence of an organised platform for secondary market as unlikely, with 62% indicating a four or five on a scale where one is good and five is poor.

Furthermore, respondents showed a low level of awareness of INREV's secondary market guidelines, which aim to facilitate this development, as 51% rated their familiarity with the guidelines as a four or five.

During a subsequent panel session, Mike Cutteridge, director at DTZ Corporate Finance, said secondary trading volumes had not been particularly high over the last 18 months because of uncertainty of the underlying asset valuations in funds. That said, secondary trading should pick up once there is more certainty in the market, he said.

There are arguably more reasons for investors to sell stakes in closed-ended funds today than there have typically been in recent years, according to experts, as many pension funds are suffering from the denominator effect and a need to rebalance their portfolios.

Fellow panellist Paul Vosper, COO at Morgan Stanley AIP Real Estate, suggested the real estate sector could learn from the private equity buyout funds sector, where 4% of investor capital is currently raised by funds specialising in buying secondary stakes. Vosper estimated that secondary trades in real estate funds amount to 1% of total capital raised.

There are only a handful of players specialising in the real estate fund secondary market, including the likes of Liquid Realty, Landmark Partners and Credit Suisse. IPE Real Estate learnt this week that there are likely to be a number of new entrants coming into the market in 2009.

However, Neil Turner, head of fund management at Schroder Property Investment Management, sounded a word of warning and remindd INREV members that institutions typically invest in real estate for three characteristics: low volatility, low correlation with other asset classes, and high income generation.

Turner suggested an efficient secondary market in the unlised sector could change these characteristics, rendering the market more akin to the listed sector.

"As an industry we really need to decide what we want," he said.

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