EUROPE - Less than a third of European non-listed real estate funds report total expense ratios (TER) to their investors, according to industry body INREV.
The 2010 INREV Management Fees and Terms Study identified major differences in how fees are administered within non-listed real estate funds in Europe, but the lack of TER (29%) reporting was the most surprising.
TER measures the total costs associated with the costs of managing and operating funds and gives investors greater clarity over what they are being charged fees for.
"The percentage of firms reporting total expense ratios to clients (29%) is lower than we would like to see, and increasing transparency in this area is something INREV will focus on in 2011," said Lonneke Löwik, director of research and market information at INREV.
The association also found that differences in the way fees were administered in funds were driven predominantly by investment approaches, as well as regional or sectoral focuses.
The study also found that fee levels reached their highest in 2007. "The study clearly shows that fees have come down significantly since the market height of 2007," Löwik said.
"Fund charges are broadly in line with what we would have expected with understandable variations between core, value-added and opportunity funds."
The study also found that vast majority (85%) of funds manage all their assets in-house, despite there being a general consensus that external asset management can be used to obtain best in class asset managers in specific regions or sectors.
Only 7% of funds said they used external asset management, while 5% reported using a combination of both, and the remaining 3% did not disclose the information.
"External asset management is more common among higher risk-return profile funds due to typically more challenging assets and the required active management style," Löwik said.
"However, most investors prefer in-house asset management as it is perceived to be better linked with oversight and the reporting of expenses related to asset management."
 

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