Seventy-two European non-listed real estate funds are scheduled to terminate over the next two years, representing a total of €11 bn of net asset value returning to the market, according to new research from INREV.
The Fund Terminations Study 2016 found that 29 funds are terminating in each of 2016 and 2017, with a further 14 scheduled for 2018. These figures are down from the 2015 total of 36 funds, suggesting that terminations have now peaked following a bumper round of launches between 2005 and 2007.
Terminations in 2017 make up more than half the total NAV set to return into the market over this period with a total value of €6.4 bn as a number of larger than average funds come to the end of their lifespans.
Liquidation was the most preferred form of termination for a third year running, chosen by 72% of the respondents who have made their decisions, followed by rollover (17%) and extension (11%). Interestingly, none of those who have decided what to do with their terminating funds are considering other options such as IPOs, whole fund sales and mergers.
The data also suggests that performance can affect the decision to extend or liquidate. There was little evidence of this between 2007 and 2009, but over the period from 2011 to 2015 the gap in average annual returns has widened. Last year the gap was 14.2%, with extending funds delivering an average return of 8% contrasting sharply with the -6.2% average for liquidating funds.
Commenting on the findings, Henri Vuong, INREV's director of research and market information, said: 'We are seeing an increasing amount of variance in the length of life of closed end funds, from genuine fixed term funds at one end to extendible funds that start to resemble open end funds at the other. This suggests that fund managers are taking a more flexible approach to the termination of their funds.
'The volume of terminations will significantly exceed the number of new fund launches over the next few years. While deployment remains a challenge, this capital is likely to be redeployed in real estate fairly quickly, and there is still plenty of investor appetite to reinvest in funds,' Vuong concluded.
