It can never be stated too many times that finding performance data to prove the relative worth of opportunity funds in Europe relative to other investment styles is a difficult task. Just ask RREEF Real Estate, which recently tried to abridge the lack of relative performance data in a report called “The Case for European Opportunistic Investing.”
Things are a little easier in North America, where there is the NCREIF Townsend Fund Index returns to rely on. In Europe, however, RREEF decided to fall back on London-based data group IPD, which produces geared fund level returns in its Pan European Pooled Property Funds Index.
Using IPD’s index as its base, RREEF separated out the component funds into three distinct groups: ‘core’ funds having a target rate of return of 9 percent or less; ‘value-added’ funds having a target return of 9 percent to 15 percent and minimum gearing of 50 percent; and ‘opportunistic’ funds targeting returns in excess of 15 percent and a minimum gearing level of 50 percent. The firm then layered on data from other sources, including its in-house information, to compare opportunistic returns with other strategies.
While opportunistic funds did better than other strategies, they do not come out smelling of roses. If one takes RREEF’s definition of opportunistic as a fund having a target return of at least 15 percent, then those funds as a whole underperformed in the eight years between 2002 and 2010 by delivering 11.7 percent.
Nevertheless, as the chart here shows, opportunistic strategies appear to have done better than others. The research paper went on to make the case for opportunity funds, pointing out that the deeper level of distress in Europe made it a more suitable region for opportunistic investing compared to other parts of the world.