INREV conference: Property fund guidelines overhauled

INREV has overhauled its industry guidelines for European non-listed real estate funds as it pushes for the creation of a global reporting standard. The European Association for Investors in Non-listed Real Estate Vehicles launched the new guidelines at its annual conference earlier this month in Berlin, changing key items that were created before the global financial crisis.

In fact, INREV took advantage of the presence of a wide cross-section of the real estate funds industry at the event to effectively redefine its own mission. The redefinition of its own guidelines is largely a function of changes in the structure of indirect real estate investment worldwide, said INREV CEO Dr. Matthias Thomas. This means INREV has to widen its own areas of concern to debt-side funds, segregated mandates, club deals, joint ventures and a variety of other structures.

Talking to a news briefing at the start of the Berlin gathering, Dr. Thomas referred to the shift away from funds in favour of more direct approaches since the start of the financial crisis, but said his organisation still had a clear role to play, a role enhanced by the provision of the new guidelines. “We will keep the mission statement unchanged in terms of increasing transparency, increasing professionalism, whatever strategy is appropriate for investors. But we are certainly broadening our perspective and deepening it. Broadening means embracing other products than the traditional fund model, and so we have changed our remit to cover debt funds, joint ventures, separate accounts next to the fund model. In fact, it may seem easier to explain in negative terms: everything that is NOT direct and NOT listed basically falls into the INREV remit - regardless of whether on the equity or debt side.”

The revised guidelines take into account regulatory changes, cover liquidity issues for the first time and cater for different vehicles such as joint ventures and club deals. Approximately 300 organisations in Europe, the Americas and Asia were consulted during an 18-month review of the original guidelines, which were developed in 2005 and formally integrated in 2008. INREV said the move would “boost transparency and performance analysis”, and “promote greater investor choice”.

Dr. Thomas said the guidelines were intended to improve reporting across all three continents. “Geographically, we are aiming for other regions than Europe. At the moment, it’s going to be a nightmare if you try to compare different NAVs, for example. The foundation of a global standard would help compare on a like-for-like basis.”

Lonneke Löwik, who is stepping down as INREV’s director of professional standards at the end of the month, said the industry had “now been through a full financial cycle since the guidelines were first formalised”, and “it was clear to us that there was not only a need to update the INREV guidelines but to ensure that they could respond to market changes.”

Among those welcoming the new guidelines at the Berlin gathering was Singapore’s sovereign wealth fund Government Investment Corporation (GIC). Neil Harris, head of asset management for real estate in Europe at GIC, described them as a “significant step forward” for the real estate funds industry.

“Stronger reporting and increased transparency are vital for accurate performance measurement, which in turn can help make real estate an even more attractive asset class for investors,” he said. “As well as encouraging compliance with the new guidelines to improve consistency of reporting and governance, INREV are also promoting best practice throughout the industry, both of which we strongly support.

The new guidelines have been launched three months ahead of the authorisation deadline for the Alternative Investment Fund Managers Directive (AIFMD), and INREV said they “acknowledge and reference” the new regulations “where needed”. The changes also include greater guidance around frequency and level of disclosure of reporting, the inclusion of liquidity, such as redemptions, and fund terminations and extensions.

Meanwhile, INREV published its Global Real Estate Fund Index this week, which combines indices published by INREV, ANREV (Asia) and NCREIF (USA).

Performance in Europe was driven by the UK, which delivered returns of 8.77% - a significant jump from the 0.28% it produced in 2012. Elsewhere in Europe, CEE funds saw returns of 1.98%, while in Continental Europe returns were 0.99% - up from -0.90% in 2012 - and Southern Europe hit returns of -11.86%.

“While the headline numbers in Europe are impressive, the detail in the INREV Quarterly Index indicates a more mixed picture. The main story is about outperformance in the UK, but Southern Europe is still struggling. If real estate is in anyway a proxy for economic recovery, these results underline the view that we’re witnessing a two-speed momentum,” said Casper Hesp, INREV Director of Research and Market Information.

Much of the improved performance in Europe was the result of capital appreciation, which increased from -3.62% to -0.04% in 2013. But there was also a strong contribution from income returns, which increased from 3.20% to 3.58%. In general, returns in Europe also benefitted from the significant inflow of capital from Asia and the US during 2012/2013. This is reflected in the INREV Quarterly Index for Q3 and Q4 2013, which posted consecutive

improvements in returns that correlated to an uplift in capital inflows.

In Europe, the industrial and logistics sector stood out as a star performer delivering returns of 5.62% on the back of growing awareness from investors of its long-term income-producing benefits. Returns in the retail sector followed on at 2.83%.

Core funds in Europe outperformed value added funds since 2008. However, the INREV Quarterly Index showed that the predominance of core is waning with value added funds starting to outperform core at 3.87% and 3.46% respectively in 2013.

“This is an interesting narrative. The INREV Quarterly Index shows value added funds rapidly gaining ground and starting to overtake core. It suggests a measure of increased confidence and risk appetite that could be re-calibrating investors’ default setting. Time will tell,” concluded Hesp.