Funds of funds: The fastest growing sector
Andrea Carpenter, Inrev
Fund of funds is a fast-growing sector of the non-listed property funds market. From the launch of the first European funds of funds in 2003, the Inrev Fund of Funds Directory now lists 36 vehicles, representing about €10.9 billion of target equity.
The fund of funds sector provides a fast and easy way for institutional investors to access a variety of smaller underlying real estate managers or for a new investor to the non-listed field to efficiently gain a diversified exposure.
The directory, which focuses on the European and Asian markets, indicates that of the €10.9 billion target equity, about 68% (€7.4 billion) is targeting Europe, 17% (€1.8 billion) is looking at Asia, and 4% (€400 million) is allocated to invest in US vehicles. The remainder is targeted at Australia or single-country funds. Inrev estimates that this database covers 80% of the market in Europe and the majority of the Asian funds of funds, but the number in the US might be higher.
The average target internal rate of return is 12.1%, derived from the various investment styles of the underlying funds being invested in. Of the total target equity of vehicles that indicated their investment strategies in the directory, €3 billion will target core vehicles, €5.3 billion value-added and €2.1 billion will look to invest in opportunity funds. Average total gearing for the underlying funds within the portfolios is 56.5% but additional leverage at the fund of funds level was only reported in six vehicles in the directory.
Real Estate Fund of Funds Investment Allocation by Region