The European Association for Investors in Non-Listed Real Estate Vehicles (Inrev) has launched new guidelines on the disclosure of fee structures for private institutional property funds, which aim to increase transparency and facilitate the comparison of fund structures.
The European Association for Investors in Non-Listed Real Estate Vehicles (Inrev) has launched new guidelines on the disclosure of fee structures for private institutional property funds, which aim to increase transparency and facilitate the comparison of fund structures.
'It would be fair to say that in the past property investment managers have perhaps not been as transparent in this area as some other asset classes. INREV has been working for two years to achieve the same professional standards for fee metrics as prevail in competing markets for capital such as equities as bonds,' said Neil Turner, head of Property Investment at Schroder Property Investment Management and Chairman of Inrev's Fee Metrics Working Group.
He was speaking at the first INREV investor only seminar in Berlin. As reported in the September edition of PropertyEU Magazine, Inrev used the seminar to launch a new common metholody for calculating the net asset value of non-listed real estate funds
The guidelines provide for ratios and metrics to assist institutional investors and managers in comparing fees and other costs for non-listed real estate funds. The Total Expense Ratio (TER) expresses annual operating costs borne by a fund over one year as a proportion of average fund assets, in order to enable fairer comparisons of costs between funds than the management fee alone. The Real Estate Expense Ratio captures both the fund-level expenses included in the TER, as well as other property-specific costs. The return reduction metric gives an estimate of the total ‘leakage’ of a fund, in other words the difference between its gross internal rate of return (IRR) and its net IRR.
'The great achievement of the Inrev fee metrics guidelines is that they establish a basis for everyone to use the same methodology for the first time. This is a big step forward in the evolution of the non-listed real estate funds industry,' said Markus Koenigstein, head of Real Estate at Germany's R+V Insurance-Group and member of the Inrev Management Board.
Investors have been coming from a situation where they have frequently been asked to make investments in a fund on very limited information - sometimes simply the annual asset management fee. From the manager's viewpoint this was usually due to the complexity of assessing the fees at the point of investment, but investors still wanted far more details on the potential future costs and the associated reduction in yield.
'An important element of the guidelines has been the inclusion - next to backward-looking TER - of a forward-looking TER which is based on estimated costs and the future composition of assets in the fund’s portfolio,' Turner said.
'We recognise that the assessment and forecasts of future costs are likely to turn out to be inaccurate, but we believe they form a solid basis on which further questions can be asked of the manager and will improve transparency in the industry,'he concluded.
Click on the link to read about Inrev's new metholody for calculating the net asset value of non-listed real estate funds.