Private real estate funds have generated 8.7 percent unlevered returns net of fees over the past decade, with 2009 vintage funds already reporting an average 14.6 percent net IRR.
A new index of more than 270 private value-added and opportunistic strategies, unveiled by Partners Group and Thomson Reuters, shows that 2001 was the best vintage year on record with pooled average net IRRs of 35.8 percent. The range of IRRs ran from 32.7 percent in the top quartile to 20 percent in the bottom quartile.
The index follows almost 10 years of fund data collection by Pension Consulting Alliance, before it merged with Partners, for use in white papers. However, by teaming up with Thomson, the firm hopes to grow the index into an industry benchmark for unlevered net returns of value-added and opportunistic private real estate funds.
To date, the index monitors more than 270 funds sponsored by 60 managers, with data collated and anonymised by Thomson and then analysed by Partners.
In the first report, 2009 vintage year funds reported pooled average net IRRs of 14.6 percent, with the range of IRRs running from 32.4 percent in the top quartile to 0.7 percent in the bottom quartile. As expected, 2007 was the worst performing vintage on record with average net IRRs of -42.7 percent, ranging from -52.7 percent in the bottom quartile and -6.1 percent in the top quartile.
The report stressed, though, that compared to the NCREIF property index – which, together with The Townsend Group, also tracks private real estate funds covering core, value-added and opportunistic investments in open-ended and closed-ended structures – the vehicles monitored by Partners returned 8.7 percent over the past 10 years compared to 7.2 percent for the NCREIF index, 6.5 percent for the World Government Bonds index and -0.5 percent for the MSCI World equities index.
“Although not unscathed by the recent crisis, private real estate investments have shown stronger returns compared to stocks and bonds in the mid- to long-term,” the report said, adding that there was “significant return dispersion of top performers and the broad market”.