Investments in Asian non-listed property funds are expected to increase as growing confidence and maturity go hand in hand. Clara Lee presents the results of the fourth ANREV survey

Investments in non-listed property funds in Asia are likely to increase significantly this year. The fourth annual Asian Association for Investors in Non-listed Real Estate Vehicles (ANREV) investment intentions Asia survey shows that 78% of investors and 80% of fund of funds managers think they are more likely to make investments into non-listed property funds than a year ago. Fund managers share this optimism, and 68% indicate that there is a likelihood of them closing a fund this year.

The survey results come as welcome news for the non-listed property funds industry in Asia, which, although growing, has been looking to see how the market will develop as it emerges from the recent financial crisis. Respondents to the survey said they believed the increased confidence in the non-listed property funds sector in Asia was a result of better market conditions and that they viewed the region as offering better opportunities than other markets.

These results hint towards positive movements in the market, with investors and fund managers more confident of investing in or launching the right funds following the financial downturn. It is also a reflection of the depth and maturity of the main Asia-Pacific markets, coupled with the growth prospects driven by China, which present an attractive investment opportunity.

Asked what has changed since last year, nearly half of the investors participating said that the moratoriums imposed after the financial crisis that prevented them from making new investments in the sector had been lifted, and internal approvals enabled them to invest again in non-listed property funds. In addition, investors said products offered on the market better match their requirements and that there are more quality managers looking to close funds.

These positive developments are directly affecting allocations: 69% of investors now indicate that they are planning to increase their exposure over the next two years. Reflecting an upward trend, this figure is marginally better than the results in the 2010 survey, when 63% of investors intended to increase allocations.

Alongside the increased allocations expected to non-listed property funds, there has also been a shift towards club deals, in which a smaller number of investors invest together in a fund structure. For 2011, 57% of investors expected to increase their allocations to this approach, which is a significant jump from the 20% that expected to increase allocations to club deals in 2010.

The rising interest in these types of investments is almost wholly a result of investors' desire to exert more control, which they felt was lacking in the run-up to the financial crisis.

The survey also pointed toward a significant continuing shift to lower risk/return profile funds for the developed Asian markets. Core is now the preferred style for 67% of investors this year, compared with 43% in 2010. Fund of funds managers, however, are moving in the opposite direction on the risk/return scale and have lowered their preferences for core. They now slightly prefer value-added funds.

Emerging markets in Asia reflect a different trend. In contrast, with the mature property investment markets, investors and fund of funds managers investing in the emerging Asian markets share an increasing preference for opportunity funds. Investors have moved up the risk/return spectrum when investing in these emerging markets, and only 8% now prefer core compared with last year's 20%. Keeping with this trend, both groups' preferences for value-added and opportunity funds have increased, to 42% and 50% respectively.

For the first time this year, the survey asked the respondents about their views on which countries and regions would represent the main sources of future capital for the non-listed property funds sector in Asia. Not surprisingly, among potential capital sources in the Asia Pacific region, 78% of investors and 61% of fund managers agree that China will be the top source of capital. Following China were Australia/New Zealand and South Korea. Outside the Asia Pacific region, the majority of respondents named North America as the top future capital source, followed by Western Europe.

The survey respondents were also asked where they intended to invest. By sector and location, China retail is the top choice for investors. Last year investors preferred China residential, but this choice has now fallen to fourth place. Singapore offices entered the top ten for the first time after being cited by a third of investors and fund of funds managers. India residential also made a comeback and stands in third place, with around 20% of investors and fund of funds managers citing it as a top choice.

The survey showed that, beyond the continuing attractiveness of the Asian non-listed property funds market, both investors and managers are hoping to see improvements in the level of transparency in the industry. In addition, both groups would like to see more performance benchmarks to enable them to compare fund performance with peers. Fund managers are keen to demonstrate outperformance and investors are prioritising having this information available. ANREV is seeking to meet this need this year by increasing the size of its research programme and the scope of its database coverage, as well as moving forward with the development of a fund-level performance tool.
This year's survey reflected 82 company-level responses, of which 45% were from investors and fund of funds managers and 55% were from fund managers.

Clara Lee, research director, ANREV