European pooled funds suffer both market and leverage woes, says IPD

The unprecedented 100 percentage--point spread of performance within the European unlisted real estate property fund market in 2008 reflected the geography of investment returns, the impacts of leverage, and a further penalty for some investors of adverse currency movements, research based on the new IPD European fund indices reveals.

According to the inaugural bi-annual IPD European Pooled Property Fund Indices 2008 (e-PPFI) - reporting the performance of 203 funds with a total NAV of EUR 121 bn - European unlisted pooled funds delivered a local currency time-weighted total return of -7.4%, which translated to a -14.8% return to euro- denominated investors, each of whom suffered the added pain of a major fall in the sterling-euro exchange rates.

Both of these figures, however, mask a much more complex set of competing influences. Across the database, performance varied dramatically - from -80% to +25%, in local currencies. The pattern of fund performance, either side of the -7.4% value weighted average, is almost entirely explained by the geography of investments, with UK pooled funds falling to the left of this average and mainland Continental funds to the right.

The impact of a strong euro against a falling pound through 2008 further diluted the overall performance of the UK fund contingent. To exemplify this, the all pooled fund index total return for UK pooled funds in 2008 in sterling was -32.0%, but when taken in euros that figure fell to -41.9%.