New research from INREV has highlighted siginificant differences in expense ratios across the spectrum of non-listed funds.
Total expense ratios (TER) for funds in the residential sector displayed the lowest levels of all vehicle types at 0.54%, followed by retail at 0.95% and office at 1.02%.
The study revealed that the European non-listed real estate all vehicles average TER was 0.86% of gross asset value on an equally weighted basis and before performance fees.
‘Given the increasing need for clarity on fees and costs, this edition of the study is particularly pertinent,' said INREV’s Director of Research and Market Information, Henri Vuong.
'Thanks to the record number of participants this year, we’ve been able to provide a uniquely comprehensive picture of the current situation. The study is further evidence of how the non-listed real estate industry is delivering against the transparency agenda.’
Size matters
Economy of scale seems to have an impact as the study identified size as an important determining factor for total expense ratios. Larger vehicles (over €1 bn in value) achieved a lower average TER of 0.58%; medium-sized funds (€500 mln to €1 bn) reached 0.71%; and small funds (less than €500 mln) had the highest average TER by comparison, at 1.07%.
In terms of vehicle styles, core funds recorded a lower than average TER of 0.79%, demonstrably different from the higher than average 1.19% TER of value-added funds.
These relative spreads were mirrored in terms of vehicle structures, with the average TER for open end funds (the majority of which are core) at 0.66%; while closed end funds (which adopt a mix of core, value added and opportunity strategies) hit a TER of 1.18%.
A total of 418 vehicles provided data to the study – marking a 10 -year high. Of this number, 155 funds delivered data on their TER, compared with 42 in the previous study, and 111 vehicles provided details of their real estate expense ratios (REER).
Differences according to vintage
There was a significant difference in the expense ratios of funds with different vintages. Those completing a first close from 2008 onwards – just after the great financial crisis – had an average TER of 0.96%, compared with the considerably lower 0.49% recorded by older funds launched before 2001.
Funds with ambitions to maintain gearing levels below 40% demonstrated an average TER of 0.66%, significantly lower than the 1.04% recorded by their counterparts with gearing levels above 40%.
