Investors are increasingly prepared to liquidate funds that fail to deliver the expected level of return, research conducted by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) shows.
Investors are increasingly prepared to liquidate funds that fail to deliver the expected level of return, research conducted by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) shows.
According to a survey by INREV, an increasing number of funds due to terminate in the next two years have already chosen liquidation or planned to do so, with almost one in two participating funds (47%) expecting to liquidate, compared to nearly one in three (32%) last year.
This means that liquidation has overtaken extension as the preferred method of termination amongst these funds.
Correspondingly, the proportion of funds looking to extend has fallen from 54% last year to 34%. Half of the assets owned by funds that are in extension or are due to extend are located in Western Europe. The majority of these (28%) are in the UK , while Spain and Portugal account for 21 % of assets, showing a confidence in the recovery of these countries.
In last year’s study, Southern Europe represented 52% of the assets being liquidated, compared with this
year’s study, where the region represents less than 30%. Investors also appear keen to hold on to student housing and leisure assets – which together account for 4% of assets in liquidating funds, a significant drop compared to last year (11%).
Fund performance and market conditions continued to be the key deciding factors. On a 13-year annualised performance basis, funds that have opted to extend achieved aggregated total returns of 5.11% per annum. This is in stark contrast to liquidated (or liquidating) funds, which delivered total returns of just 0.57% (on a 10-year annualised performance basis).
On a five-year return basis the difference in returns are more extreme; funds that have opted to liquidate achieved total returns of -9.62%, while those that opted to extend delivered positive returns of 0.39%.
Commenting on the results, Henri Vuong, director of Research and Market Information at INREV, said: 'The Fund Termination Study allows us to take an early look at potential assets coming on to the market. Next year will see a peak in upcoming terminations with 42 funds, representing almost €7 bn (GAV), due to terminate. This may help ease the burden on investors looking for quality assets at a time when demand is increasing due to higher levels of capital raising.'