'Core’ strategies more popular than opportunity funds

INREV concludes from its 2010 Investment Strategies questionnaire that there has been a shift ‘down the risk spectrum’, with investors in unlisted funds preferring to concentrate on core property for diversification and income generation sake

Core property strategies have become more popular than opportunistic styles, according to a questionnaire carried out by INREV, the European Association for Investors in Non-listed Real Estate Vehicles.

The body concludes from its Investment Intentions Survey 2010 that close to 70 percent of investors now prefer core style funds compared to 38 percent in 2009.

This shift towards core has been almost completely at the expense of the opportunity fund style, which fell to 3 percent from 37 percent, it said. 

“This shift down the risk spectrum shows that investors are focused on the benefits that real estate can offer such as diversification and income generation, which can be found at the lower risk, return end of the scale with core funds,” said Andrea Carpenter, interim chief executive of INREV. “When this shift started in 2009, it was a reaction to the financial downturn, but the continued trend suggests that investors are revising their expectations of the role of non-listed property funds.”

However, not all investors are displacing opportunity funds.

Those managing fund of funds have increased their appetite for risk with 43 percent preferring opportunity funds compared to 23 percent last year. INREV said this partly indicated that fund of funds managers were looking to capitalise on opportunities in the current market.

There is some worrying news however for the health of the unlisted sector in general.

For the third year, a smaller proportion of investors said they planned to increase their allocations to unlisted real estate funds over the next two years.

Forty nine percent said they planned to increase allocations, less than the 63 percent who said the same thing in 2009 and 85 percent in 2008.

However, INREV insisted the shift was mainly in favour of “no change” rather than a decrease.

The survey also found that access to expert management continued to be the main reason to invest in non-listed property funds.

Concern over alignment of interest was selected by almost 70 percent of investors as the main obstacle to investment in non-listed property funds. That overtook both market conditions and the lack of transparency and market information. There were also notable rises in concerns from investors of the lack of liquidity and availability of real estate to buy. The ability to raise capital was seen by all respondents as the main obstacle facing fund managers this year.

Also, like bankers, investors and fund managers now see a fund manager’s staff and company track record as the most important factor for fund selection. This overtakes a manager’s local presence, which was the most important criteria in 2007, 2008 and 2009.  

The most significant changes in preferences in terms of fund type have been around investor involvement and investor pool size. Almost 80 percent of investors now prefer a high level of investor involvement and a large proportion favour a smaller pool of co-investors. This differs from 2009 when preferences for a small or large pool of investors were equally divided.

UK offices are now the preferred investment choice followed by French offices. The survey also revealed that Eastern and Central Europe, as an investment destination, fell from the top 10 this year as most investors favoured the more core European markets.