Networking and transparency are key benefits of INREV membership say investors, but the lack of resources available to small investors to engage fully remains an issue. Steve Hays reports
The European Association for Investors in Non-listed Real Estate Vehicles (INREV) celebrates its fifth anniversary at its annual conference in Istanbul this coming April. An informal straw poll among some of INREV's investor members provides some indicators as to why they joined this relatively young but fast-growing organisation.
"About three years ago when we decided to get into real estate, we didn't have any direct property and we didn't want exposure to listed vehicles, so we chose private equity real estate," comments Timo Löyttyniemi, managing director of Finland's State Pension Fund. "INREV was very important at this initial stage in providing us with a ready network of people in the industry and a database to find out what products were available."
The State Pension Fund has about 3% or €300m of its €12bn investment portfolio in real estate, and Löyttyniemi's response is typical of the smaller non-listed fund investors who make up a relatively minor proportion of INREV's membership - a characteristic acknowledged by its chief executive, Lisette van Doorn.
"It is more difficult for us to reach out to the person responsible for alternative investments who does real estate for one afternoon a week and probably has piles of competing paper for other assets classes on their desk," Lisette van Doorn told IPE Real Estate.
"We find it harder to focus on them and find them in the institutional market. Yet we believe that INREV has a lot to offer to small investors in making the market more accessible through increased transparency, professional standards and industry contacts," she added.
The smaller investors who make it through INREV's door do appear to find it more difficult to remain continuously engaged with the industry once they have established their structures to invest in non-listed real estate funds. As you move up the rankings of assets under management in the sector, the more engaged and committed investors seem to become in their use of INREV's services and their participation in its events.
While it is tricky to gauge the average size of non-listed real estate fund assets held in the portfolios of INREV's membership they do seem to tend towards the bigger boys on the block.
The investment management division of Zurich Financial Services joined INREV in 2006 and has total real estate assets under management of $10.2bn (€7bn) of which about $700m are in non-listed funds. Regional investment manager for European and international real estate Cristian Canis said the insurance company is planning to increase its exposure to non-listed funds and this made it vital to understand the market in depth.
"We use INREV's database to find out which funds are open, or are coming onto the market, and the professional standards documents and research that are published are very useful," Canis says. "These guidelines are pioneering work because they provide a common understanding of industry terminology across Europe. What may be obvious to the insiders in the investment banks in London, might not be so obvious to an investor sitting in Munich, Oslo or Milan."
He added that Zurich had already seen the INREV Due Diligence Guidelines being incorporated into fund managers' documentation, which is hugely helpful for both investors and managers as it standardises a vast amount of information, particularly at the early stages of the investment process.
"We joined INREV when we started the business to get connected in the market and to build our know-how. We want greater transparency, particularly in managers' fee structures and better co-ordinated data collection across the market," said Warner Baumgartner, head of indirect private real estate at Swiss RE, which has about SFr750m (€450m) in non-listed funds from a total real estate portfolio of SFr3.5bn, including direct and listed property.
"We would like to be able to dig much deeper into the fee structures of managers and INREV initiatives, such as the fee metrics paper and management fees study, are very helpful in this, as sometimes you have double or even triple fees hidden within the product," he says. "That's why we would like to have more transparency to make fair comparisons."
For Germany's E.ON Energie, which has about €2bn in non-listed real estate, the further development of the INREV Index as a future performance benchmark for the non-listed real estate funds sector is a crucial part of the association's work.
"The development of the INREV NAV model goes a long way towards improving standardisation in the industry, but we are still waiting for a benchmark for performance, particularly in Europe and Asia where there's really only a blank piece of paper at the moment," says Matthias Stürmer, head of real estate management at E.ON.
Stürmer says INREV's Investor Platform, where investors meet as a group to exchange views on the market and their strategies, is a unique feature of the association.
"Without these closed platforms the opportunity to share mutual experiences among investors wouldn't exist. They are a really good idea as you don't always want to share your ideas and strategies with fund managers."
The INREV networking events, such as the Investor Platform, annual conference and seminars were a common theme in investor responses as a major reason for them joining the association.
"INREV is an excellent forum for exchanging views on the property market and to find out what other members are doing. We also think it is a good platform vis-à-vis the vendors, buyers and activities we engage in abroad, as we gain more visibility for ourselves by associating with INREV's brand and its authority as an industry association," says Hans Thygesen, administrative director (CEO) at Danish property investment company Investea A/S, which has total real estate assets under management of about €2bn.
Looking forward, investors want INREV to extend its education and training programme, which started in 2006 in areas including reporting, regulation and taxation and legal requirements.
They are also keen on any light the association can shine on new emerging market investment opportunities, particularly in Asia. "I know INREV is considering looking at Asia and that would be very useful for the future direction of this industry," Stürmer concludes.
Steve Hays is a founding director of Bellier Financial based in Amsterdam