Investors seeking niche strategies and diversification helped non-listed real estate funds of funds doubled the share of capital raised in 2017 according to a report.
The latest funds of funds study published by real estate associations INREV and ANREV shows that, in total, €152.3bn of fresh equity was raised for non-listed real estate, with €8.1bn or 5.2% destined for funds of funds.
This is a record level of new capital and a significant jump from the €3.0bn or 2.5% of the total capital that was raised in 2016, the report said.
Funds of funds delivered positive returns to their investors, whether broken down by style, structure, regional strategy or size, it said.
The study which includes 60 funds of funds managed by 25 managers, showed that one in seven investors plan to increase their allocations to funds of funds over the coming two years.
The sector achieved an annual return of 5.1% over 2017, slightly down on the 6.2% achieved previously.
Funds of funds with a global strategy comprise the largest share of vehicles in the universe, both by number and size.
Global strategy vehicles make up just under 50% of the overall vehicles and represent 78.6% of total NAV.
Vehicles with a European strategy followed next, representing 33%, whilst those targeting Asia-Pacific represent 20%. Strategies targeting North America were minimal.
All regional strategies delivered positive returns, but those targeting Asia Pacific especially so.
After a few years of subdued performance, Asia-Pacific funds of funds posted a remarkable comeback with returns of 15.1% in 2017, a strong come back from the -3.3% recorded in 2016.
In comparison, European and global funds generated 6.6% and 4.4% respectively, performance similar to last year.
Commenting on the findings, Lonneke Löwik, INREV’s CEO, said: “The results demonstrate that funds of funds remain in good health. For smaller investors in particular, they offer significant diversification options, and the opportunity to create a nice blend of different aspects.
Dimme Lucassen, a senior investments manager at Aberdeen Standard Investments, said: “It’s no surprise to see the positive figures from INREV as funds of funds continue to be an excellent tool for investors.
“They are a great way to achieve exposure to best in class fund managers or niche strategies, while simultaneously reducing risk due to significant diversification across sectors and regions.”
