European funds deliver marked recovery over H1: IPD

European pooled property funds have made a marked recovery over the 12 months to June, delivering an 8.3% local currency total return, compared to -18.6% over the previous year to June 2009, according to the IPD European Pooled Property Fund Indices (ePPFI).

The bulk of the recovery was achieved in the first six months of 2010, which contributed a 4.1% six-month total return, which reflects the improvement in the underlying performance of key direct European property markets, the positive influence of leverage in rising markets as well as shrewd recovery investment strategies.

The IPD ePPFI is based on a universe of 269 funds focused on a broad selection of markets and strategies accessed by a global market of institutional investors representing a total NAV of EUR 86.5 bn and a total GAV of EUR 130 bn.

'These figures illustrate a substantial recovery for the European pooled property fund market. Although lower than the performance achieved during the bull market years of 2005 and 2006, the headline 8.3% annual return marks a return to more consistent performance in line with the first half of the last decade,' said Cameron McVean, head of Fund Services at IPD.

The returns for Specialist and Balanced property funds over the past three years to June 2010 reveal the significant impact that leverage can have on the performance of investments. Specialist funds, which adopt sector specific strategies and typically apply higher levels of leverage, delivered -9.2%, outperformed balanced funds - which by nature are well diversified and utilise debt to a lesser extent - and which returned -2.4%.

Last week, the European association of investors in non-listed real estate funds (Inrev) reported that the sector had returned to positive territory for the first time since 2007. The first ever Inrev Quarterly Index booked a return of 2.5% in the first quarter of 2010 and 1.5% in the second quarter in local currencies. This compares to an annual performance of -7.8% in 2009.