GLOBAL – More closed-end property funds facing termination are now deciding on their future strategy well in advance, in a sign of increased market confidence, according to data from INREV.
In its latest fund termination study, INREV (the European Association for Investors in Non-Listed Real Estate Vehicles) finds the number of funds setting their termination strategy two years ahead of time increased to 26% in 2013 from just 6% in 2012.
But the proportion of decisions being taken close to the termination date indicates the economic recovery in Europe is still fragile, it says.
While investors and fund managers are still starting to look at options 2-3 years before termination, more than half of funds due to end between 2013 and 2015 have still not decided whether to continue, according to the report.
The study analyses 179 closed-end funds originally due to terminate between 2007 and 2015, with a combined gross asset value (GAV) of €70.8bn.
Casper Hesp, director of research and market information at INREV, said: “While most investors are still waiting for funds to recover from lacklustre performance during the economic downturn, our study shows that more investors are opting to liquidate poorly performing assets.”
Total returns for funds being extended are 6 percentage points higher on average since the financial crisis than those for funds choosing to liquidate, data shows.
Around one-third (€23.1bn) of the total GAV belonged to funds that were in extension already or would extend after this year, it says.
There is a clear preference for holding onto assets in the stronger European markets, Hesp said.
The study shows investors clearly prefer Western Europe, with the UK, France, Germany and Belgium accounting for 57% of the assets of funds being extended.
By comparison, 52% of the assets being liquidated between 2007 and 2015 are in Southern Europe, according to the study.
Spain and Portugal combined accounted for less than 16% of all assets in or due for extension.
More than half of funds that are being extended include changes as part of the extension, INREV said, with 60% of the sample surveyed reporting that changes have been made to the funds.
Examples of these are alterations to fund structures, fee arrangements, leverage and overall strategy, it said.
Separately, Italian real estate asset management firm IDeA FIMIT SGR’s board of directors has approved amendments to the articles of its Fund Atlantic 1 to allow the fund to be extended for three years.
The closed-end fund was due to terminate on 31 December, but will now do so at the end of 2016.
The board of directors met following recommendations from the fund’s advisory committee, after the fund’s AGM on 25 September failed to reach the quorum required for decision-making.
The board of Atlantic 1 also agreed to reconsider the fund’s commission structure in future meetings, following the advisory committee’s recommendation that it cut the fees payable to the asset management firm alongside the extension of the fund.
The changes to the fund will take effect after approval by the supervisory board, IDeA FIMIT said.
It said the rationale for the extension was to replace the three-year grace period the fund would have had, during which it would have sold assets.
This grace period would have put the fund in the unfavourable position of a forced seller, the firm said.
However, during the three-year extension, the fund would have more freedom to act to improve the attractiveness of the properties it held, hopefully giving a more satisfactory outcome for fund participants, the firm explained.