Value-add/opportunistic index sees private fund returns grow

An index of 300 value-added and opportunistic real estate funds across the world, sponsored by Partners Group and Thomson Reuters, recorded a return of 10.4 percent for 2011 – better than both a listed index and the wider S&P 500 Composite Total Return Index.

A recently-launched private real estate index by Swiss-based private markets investment firm Partners Group and news service Thomson Reuters has found that value-add and opportunistic private real estate funds returned 10.4 percent last year.

The Partners Group Thomson Reuters Private Real Estate Index, which was launched in February 2011 and provides performance data based on net cash flows and net asset values, monitored value-added funds that returned 19 percent in the year to 31 December and opportunistic funds that returned just 6.8 percent. When blended, the two strategy types returned more than the 8.7 percent recorded at the time of the index’s launch.

The index’s findings for the last year also marked a meaningful improvement on those for the last five years, including vehicles active at the start of the global financial crisis. Over the last five years, value-added and opportunistic funds collectively returned -2.8 percent.

In an announcement, Partners Group highlighted that private real estate funds significantly outperformed both the Thomson Reuters Global Real Estate Total Return Index, which monitors listed real estate returns, and the wider S&P 500 Composite Total Return Index. These two indexes returned -14.3 percent and 1.8 percent, respectively. The firm noted that private real estate funds had outperformed public equity markets by more than 8 percent since 2000.

Partners Group listed a series of additional takeaways from its findings: the strong rebound in performance in the last year came despite a challenging economic environment in the second half of the year; the data suggested a careful selection of managers was even more important in private real estate versus private equity, where none of the vintage years between 2000 and 2010 had shown a negative median IRR; and vintage years where the most capital was raised tended to underperform, whereas those years where the least capital was raised – or investment managers had taken a “contrarian view” – had performed better.

Partners Group canvassed data from 300 funds from more than 60 firms worldwide, with total commitments of approximately $200 billion, which it estimated to be about 30 percent of the total private real estate funds universe. While it described that catchment as a “relatively high market share compared to other alternative data sources,” the firm did admit the findings were likely reflective of “a quality index” from a relatively upward biased database. Among the reasons for that were firms opting to report on better performing funds, the number of funds active during the “boom era” not offering data and the number of funds that have ceased being active following the start of the global financial crisis.

Nevertheless, Partners Group said it expects to broaden the data of the index to ensure a less biased outlook and that it expected groups to be incentivised to report less successful funds to ensure they aren’t measured against an upward biased database.