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Funds of funds investment down 96%

A survey by the European industry body, INREV, revealed funds of funds managers invested just €75m in the first nine months of 2009 – down from €2.2bn in 2007. Secondaries, though, will be more important in 2010.

Investment in property vehicles by funds of funds managers has fallen a staggering 96 percent from 2007-levels with just $75 million invested in the first nine months of 2009.

According to a survey by the European Association of Investors in Non-Listed Real Estate Vehicles, funds of funds made just five equity investments in the first three quarters of this year compared to 50 totalling €548 million in 2008 – and 97 investments totalling €2.2 billion in 2007.

Fund of funds managers see opportunities opening up for 2010 for uninvested capital with a focus on potential secondary market transactions as well as vintage 2010 funds.

Lonneke Löwik, director of research and market information, INREV

The dramatic drop-off in activity level was due to the inability of managers to price funds and their underlying assets, INREV said. Almost three-quarters of respondents raised concerns real estate fundamentals could worsen, as a barrier to investment, while others raised the stability of fund sponsors and the distraction of legacy assets.

However, the industry body noted funds of funds managers were increasing eyeing the real estate secondaries, with two-thirds of the 16 managers responding saying secondaries was now a “more important part of their investment strategy”.

The ability to enter funds at “advantageous prices”, was cited by the managers – who control 30 funds with a target equity of €10 billion – as the primary reason, but they added the ability to access locations and sectors at discounts to net asset values, which could have potential capital growth, was another. Around 93 percent of those surveyed said they would consider trades to increase exposure to existing funds, fund they were not currently invested in or both.

“The results also show that fund of funds managers see opportunities opening up for 2010 for uninvested capital with a focus on potential secondary market transactions as well as vintage 2010 funds,” said Lonneke Löwik, director of research and market information.
 
INREV follows 52 funds of funds targeting €17 billion of equity, compared to 57 funds of funds in September last year. The association said since its last update six funds had been deleted and one new fund added.