Matthias Thomas, INREV
Matthias Thomas, CEO, INREV
The latest survey from non-listed association INREV shows that institutional investors are showing a growing appetite for risk as they increasingly look beyond ‘core’ strategies. It also shows that the percentage of investors expecting to increase their allocations to non-listed real estate funds has fallen further this year for the second year in a row, with a growing number expecting to decrease their allocations.
INREV’s latest Investment Intentions survey highlights the growing discomfort many investors experience with what they see as insufficient alignment of interest with fund managers. This favours joint ventures and club deals, which investors perceive offer them more control than pooled funds, with 47% of survey respondents saying they expect to increase their allocations to these categories.
It remains to be seen whether investors will act on their convictions expressed on paper, but of those surveyed, 43% said this time that they now had a preference for value-added strategies, a figure almost double the proportion (21.9%) recorded in last year’s survey. The majority of investors (50%) still prefer core strategies, but this figure is notably down on the 69% from a year ago.
The shift away from core is likely to benefit moderately risky strategies, the study suggests, with interest in higher-risk opportunistic strategies remaining limited at 7%, down from 10% in 2012.
“Value-added is back,” said Casper Hesp, INREV’s director of research and market information, suggesting that investors were “moving up the risk curve”.
When broken down by investor domicile, the shift towards value-added was driven predominantly by German and Nordic investors and 'others' – mainly UK, Asian, French and US investors. Dutch investors remained overwhelmingly committed to core strategies, with more than 70% voting in favour.
Another notable aspect of the survey was the mismatch between investor intentions and fund manager expectations, with more than 70% of managers selecting core as investors' preferred investment style and less than 10% choosing value-added. Hence the discomfort investors are feeling about their fund managers’ ability to match their needs.
In addition, more than 30% of investors said 'availability of products' was one of the most challenging obstacles when seeking to invest in non-listed real estate.
(REFIRE: All in all, non-listed fund managers will have to work hard this year to retain the confidence of their investors, who seem increasingly willing to express dissatisfaction with managers’ performance.)
Meanwhile, Germany retained its title as favoured investment location in Europe, with almost 68% of investors polled in the survey and as much as 92.3% of fund of funds managers opting for allocations to the German market. The Nordic markets ranked second with 60% of investors selecting this as their preferred location, largely driven by their own domestic investments. In third place came the UK with 32% of investors favouring the British market.
INREV’s CEO Matthias Thomas (pictured) commented, ”Set against the story of the wider economy and investment landscape, these results suggest a positive climate for real estate. It seems likely that real estate will continue to edge forward as part of investors’ total multi-asset portfolios.”
The annual INREV Investment Intentions Survey, of which this was the ninth edition, is supposed to provide insight into the expected trends in the non-listed real estate funds industry for the coming year. The latest report is based on data and feedback from 155 respondents made up of 65 investors, 17 fund of funds managers and 73 fund managers.