Despite nervousness in the financial markets, UK pooled property funds (PPFs) continue to attract new investment, according to the Association of Real Estate Funds (AREF). AREF, which recently published its Investment Quarterly for Q3 2007, said that over £800 mln was raised in Q3 with increased inflows from existing pooled property fund investors accounting for a large proportion of the total.

Despite nervousness in the financial markets, UK pooled property funds (PPFs) continue to attract new investment, according to the Association of Real Estate Funds (AREF). AREF, which recently published its Investment Quarterly for Q3 2007, said that over £800 mln was raised in Q3 with increased inflows from existing pooled property fund investors accounting for a large proportion of the total.

The association believes that these inflows reflect long-term confidence in the real estate sector, together with recognition of the continued attractiveness of property returns relative to other asset classes. Whilst redemptions increased over the quarter, AREF noted that this has not been of the scale anticipated by the press. 'Private investors/retail PPFs are continuing to attract substantial amounts of new money,' AREF said in its IQ report.

PPFs continue to outperform real estate equities and gilts in spite of a general slowdown in the broader commercial property market. In Q3, PPF total returns were 6.9% year-on-year, significantly above government bonds at 1.2% and the negative returns of 11.6% delivered by real estate equities. At the same time, total returns from PPFs remain strongly correlated with those generated from direct property. The slowdown in total returns across the sector reflects a rise in yields as investors price in the higher cost of borrowing.

The weighted yield across all 63 funds in the survey stood at 3.22% for the quarter, 0.13% up from Q2. AREF noted that the highest distributing fund delivered a yield of 8.4%, considerably more attractive yields available on either gilts or equities - whether the comparison is with the FTSE All Share Index or the Real Estate Sector Index.

'Returns from pooled property funds held up well in Q3 at 6.9% year-on-year. The PPF sector is showing continued support from existing investors who recognise the merits of these vehicles as long term holdings in a diversified pension fund', Nick Cooper, chairman of AREF, said.

AREF's Investment Quarterly research analyses data provided by the 63 funds that represent over £43 bn of net asset value.