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The Netherlands has long been thought of as the most important source of European capital for managers wishing to raise funds. Yet scant information has existed for real estate fund managers other than anecdotes of generous LP commitments from investors in the country.

Which is why a study published last month by the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) is instructive.

In its Investor Universe Netherlands Survey 2010, the association found that Dutch institutions hold €41.6 billion of investments in non-listed real estate funds.

Comparing with figures produced by INREV in similar surveys for the UK and Germany earlier this year, it would seem that the Netherlands is more important than both of those countries, given that they have €28 billion and €18 billion invested respectively. 

Dutch investors, according to the association, will become more important still as a well of money because the survey predicts they will commit a further €12.5 billion in the next three years – an increase of 30 percent.

The keenness is partly explained by investors with a limited allocation to the non-listed sector needing to increase it, while some institutions with larger direct portfolios will gradually convert their holdings into unlisted real estate.

Large pension funds dominate the non-listed real estate universe, accounting for almost three quarters of the market.

However, all types of institutional investors will increase their non-listed allocations over the next three years, said INREV. Insurance funds will invest an additional €1.5 billion, while the large pension funds will invest €8.8 billion; the medium-sized pension funds will deploy €1.6 billion and the small funds an extra €440 million for whom non-listed dominates their strategy.

INREV says core property fund investing was the “most applied style” with 93 percent of the respondents having this strategy in the portfolio. This is followed by 64 percent with investments in value-added vehicles and 36 percent in opportunity funds.

Many of the small and medium-sized pension funds have converted their direct domestic holdings into non-listed funds, realising that a full team is needed to manage even a small-sized portfolio of direct real estate, but that the costs for a small portfolio are inefficient.

INREV added that insurance companies and some of the large pension funds are considering, or are already in the process of restructuring their portfolios into funds that can open up to third-party investors.

Respondents to the survey said the chief reason to invest in unlisted real estate funds was access to expert real estate managers, and easier implementation than direct real estate. A further reason is that non-listed funds provided more stable returns and lower volatility than listed real estate.

Diversification for a multi-asset portfolio, access to new markets and specific sectors were also on the list of reasons.

Joint ventures are not yet a substantial part of Dutch real estate allocations, said INREV. Only 4 percent of respondents have actually invested using a JV while 26 percent are mandated to do so.