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Funds of Funds - World Wide
Anchor investors of the capital fund initiated by the FAP Group Berlin are a renowned German pension fund as well as a large German insurance group.
Real estate multi-manager or funds of funds posted total returns of 8% worldwide last year, the highest since 2007 and a massive rise on 2013 when performance was just 0.2%, says European non-listed property fund association INREV.
The associations’ joint Fund of Funds Study 2015 suggests a strong recovery of the sub-sector, moving it back to prominence as a key area of interest for institutional investors, following much poorer performances over the previous eight years.
The study also noted a significant narrowing of the gap between the upper and the lower quartiles performance, to 11.9% from 21.5% in 2008, which indicates lower volatility in the market.
Henri Vuong, INREV director of research and information, said: “These results are impressive, particularly in the context of earlier anaemic performances. They are a clear indication funds of funds have regained their mojo.
“As with other products in the non-listed space, there is change afoot, with some funds of funds reaching maturity within the next decade.”
Vuong, however, said the statistics should “go a long way” to restoring investor confidence in the diversification benefits of funds of funds and “renew enthusiasm” for these vehicles as part of a balanced allocation to non-listed real estate.
Global funds of funds delivered highest returns last year, at +11.9%. Those with a European strategy posted the highest jump in performance, to +5.2% from -5.1% in 2013. Non-European funds of funds delivered +9.8% while those focused on Asia Pacific lagged the other regions at -3.3%.
According to Catriona Allen, fund manager of Aviva Investors Global Real Estate Fund of Funds: “Global funds of funds have a wider universe of potential funds to invest in, giving greater opportunities to select managers they perceive to be the best in their class, and so able to deliver superior returns.
“They are also able to access sectors and regions at different points of the investment cycle, avoiding potential downturns in one region in favour of other preferred opportunities.”
Closed-end funds of funds outperformed their open-ended counterparts, with total returns of 8.9% and 7.8%, respectively, continuing a trend that has been consistent since 2009.
The study also reveals a clear distinction in performance and return expectations of different fund-of-fund styles.
Core funds of funds last year returned 8.8%, compared with 5.4% for non-core.
The study also found that the funds of funds industry is set for large-scale transformation over the next 10 years, when 39 vehicles are set to terminate, representing €2.7bn or nearly 10% of total net asset value in the sector – which will potentially seek redeployment. INREV expects a peak of 11 terminations in 2019 equating to €1.1bn.
The INREV study included data from 64 funds of funds managed by 25 managers and representing €9.5bn of net asset value.
