Research highlights regional differences in total expense ratios for non-listed real estate funds
New research has revealed a divergence of non-listed real estate total expense ratios (TER) between Asia Pacific and Europe.
According to the INREV/ANREV Management Fees and Terms Comparison Study 2019, the average TER for non-listed real estate funds in Asia Pacific is 1.04 per cent on a gross asset value basis (GAV) before performance fees, compared to 0.86 per cent in Europe. The disparity also exists when TER is calculated on a net asset value (NAV) basis.
The study identifies size as an important determining factor for TER. While larger vehicles (over EUR1 billion in value) have similar TERs on a GAV basis in both regions; medium sized funds (EUR500 million to EUR1 billion) reached 0.71 per cent in Europe and 0.90 per cent in Asia Pacific; small funds (less than EUR500 million) had the highest average TER by comparison and the biggest disparity between the two regions, at 1.07 per cent in Europe and 1.67 per cent in Asia-Pacific.
Vehicle vintage is also significant. Younger vehicles tend to have higher TERs than older vintages. Funds launched in Europe and Asia Pacific before 2007 have an average TER of 0.77 per cent and 0.54 per cent based on GAV, versus those launched in the last five years which recorded average TERs of 1.34 per cent and 1.64 per cent, respectively.
With respect to single sector performance, all traditional sector funds in Asia Pacific have smaller TERs than in Europe on both a GAV and NAV basis, before and after performance fees. For example, TERs based on GAV for industrial and logistics are 0.53 per cent in Asia Pacific versus 0.84 per cent in Europe – ahead of retail funds in both regions.
Despite differences elsewhere, funds split by structure are fairly similar across both Asia Pacific and Europe – with the average TER for open end funds on a GAV basis at 0.70 per cent and 0.66 per cent in Asia Pacific and Europe respectively. But there are more noticeable differences when looking at TERs for closed end funds. TERs before performance fees are higher for Asia Pacific, at 1.30 per cent on a GAV basis compared with 1.18 per cent for Europe.
Lonneke Löwik, INREV CEO, says: ‘These results are more pertinent than ever, given the increasing need for clarity on fees and costs. This detailed breakdown of TERs across Europe and Asia Pacific provides useful insight into the differences and similarities across regions and markets that will help inform investment decisions. It also reflects the efforts of INREV and the industry as a whole to exert downward pressure on fees; and adds to the consistent drive for greater transparency.’