EUROPE - Non-listed real estate funds remain the asset class of choice among institutional investors looking to increase their investments in European real estate in turbulent times, according to a study by INREV, the Amsterdam-based European association for investors in non-listed real estate vehicles.
Over 70% of the 28 institutional investors respondents said they intended to increase their allocations to real estate in the medium term, with non-listed vehicles the most popular choice.
INREV claimed its findings demonstrated the confidence investors now have in the asset class over the longer term as one-fifth of respondents believing the case for investing in real estate had actually improved despite the credit crunch and its ensuing fallout and listed property companies are looking to benefit from the investors' appetite to diversify further into property.
In the shorter term, however, the story is somewhat different the survey suggests, as 70% said they were considering reducing their real estate weightings as a result of the ‘denominator effect' - where investors paradoxically attempt to rebalance the value of their portfolios by increasing their weighting to traditional asset classes to boost their value in times of decline at the expense of property or other alternative classes.
That said, non-listed real estate funds are showing strong signs of immunity to the denominator effect, as over 70% of respondents also told INREV they did not intend to change their allocations to non-listed vehicles yet, which could explain the preference institutional investors display for non-listed real estate.
Despite investors remaining confident in real estate, INREV is quick to point out market conditions are nonetheless slowing down the time investors take to make investment decisions.
Some 50% of those polled admitted they now took longer to research due diligence of non-listed vehicles before determining how much they wanted to allocate to them.
With fund-of-funds, however, there was little or no change as much of the due diligence would be carried out by the fund-of-funds manager.
Poor market conditions are also giving investors greater clout in negotiating fees, INREV claimed, as some 60% of investors and 73% of fund-of-fund managers said they were in a stronger position to review the fee agreements they have with their asset managers, giving them greater power to demand better and more transparent reporting.