Trade organizations ANREV, INREV and NCREIF, representing investors in Asia-Pacific, Europe and the US, respectively, have launched the Global ODCE Funds Consultation Index, the first global index consolidating the performance of non-listed real estate open-end diversified core funds. The benchmark, released last week, measures net asset value performance on an equally weighted and quarterly basis.
The Global ODCE is the latest addition to the Global Real Estate Fund Index, a suite of global benchmarking tools developed jointly by the associations. The toolkit already includes the GREFI, which launched in 2014 and measures net asset value-weighted performance, and the Global IRR Index, released in 2020 to capture the net internal rate of return of closed-end funds. The Global ODCE aims to further boost the provision of data on and transparency around private real estate returns for the global investor community.
According to Iryna Pylypchuk, director of research and market information at INREV, the Global ODCE reflects the evolution and growth of a peer group that is well understood across the industry. “The history of the ODCE funds goes back more than 40 years in the US, and in the last decade, we have also seen very significant growth of the equivalent in Europe and Asia-Pacific with the INREV ODCE and the ANREV ODCE, respectively,” she told PERE.
“There is strong investor appetite and potential for the ODCE sector to grow, notably in Europe, over the coming years. ODCE funds offer [investors] size and economies of scale in investing and managing their portfolio, low fees, diversification, [a] low-risk profile and liquidity. These features make them attractive to small and large investors who are targeting a passive core diversified portfolio of large, stable, income-producing assets.”
Pylypchuk said the Global ODCE, with its clear core peer set for all three regions, is the next step to understanding the global real estate market. “It has followed changes in capital movements from investors, and the move towards a globally diversified strategy that we see across the board. Bringing the three regional ODCE Indices together on a global level, in an equally weighted index to reflect the relative sizes of the non-listed real estate markets in the three regions, creates a powerful benchmark.”
For the first Global ODCE Consultation Index, 50 funds are represented with total gross asset value of $403 billion. Pylypchuk said this is “just a starting point, as we progress towards reporting on a gross returns basis, and then to a global asset-level performance and attribution analysis, which is the ultimate goal.”
‘No surprises’
In analyzing the inaugural returns from the index, Pylypchuk said there are no surprises given the current market conditions. The index returned -1.90 percent in Q1 2023, a marginal increase on Q3 2022, but indicating the slight improvement in returns in Q4 2022 was short lived.
Each region posted performance in the red for Q1. Returns were strongest in Asia-Pacific at -0.43 percent, followed by Europe at -1.89 percent, and trailed by the US at -3.38 percent.
“Some markets are further ahead than others in their repricing but, broadly speaking, the direction of travel is clear,” says Pylypchuk. “The US and Europe have corrected more in terms of performance, given where they are in the cycle. The correction is now coming through in some parts of Asia-Pacific, but the region is later to the game as different markets are in different places in terms of repricing, driven also by diverging interest rate policy.”
On a five-year annualized basis, the Global ODCE returns 4.89 percent. “In the medium- to long-term, open-end core diversified funds are expected to deliver a healthy, less volatile performance than the single sector or country segments of the global market, because that is the purpose of diversification,” she added. “It will be interesting to see the extent to which that will play out as we move towards more of a normalization in the global market over the next couple of years.”
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