Property funds of funds post record high EUR43.4bn AUM in 2020

Real estate funds of funds globally increased their total value of assets under management (AUM) to a record high of at least EUR43.4 billion at the end of 2020, marking the third consecutive year of growth, according to the ANREV/INREV/NCREIF Fund Manager Survey 2021.

The Fund of Funds Study 2021, jointly published by INREV and ANREV, paints a similar picture of a consistently dominant appetite for large, core style funds of funds with global strategies, in particular.

Both studies highlight investor interest in funds of funds that offer the benefits of scale, sector and geographic diversification across a wide array of non-listed estate investment strategies, and that follow a core strategy. The combined data reflect the continuing trend toward investor consolidation as well as greater focus on strategic reviews – factors which are likely to drive demand for funds of funds targeting global strategies.

Funds of funds with a global strategy make up the largest share of the INREV/ANREV Funds of Funds Universe, representing 70per cent of the total by number, and 95per cent by the total NAV. Those with a European investment strategy represent 22per cent of the universe by number (4per cent of total NAV), while those targeting Asia Pacific account for 9per cent by number, and only 1 per cent of total NAV. The universe does not include a single fund of funds targeting North America.

Funds of funds with a core style make up almost half (48per cent) of the universe by number, but 94per cent of total NAV. Core style funds of funds tend to be large with an average NAV of EUR1.8 billion. However, the three largest core style funds of funds have an average NAV of around EUR5.5 billion, representing 78per cent of the total value of the Funds of Funds Universe.

Value added funds of funds account for just 5per cent of total NAV, with an average NAV of EUR112 million per vehicle. Funds of funds with an opportunity investment style make up the remaining 1per cent, with the average NAV per vehicle being EUR89 million.

In the 2021 Funds of Funds Study, core style funds of funds outperformed non-core for the fourth time in the last five years, with returns of 1.9per cent and -3.1per cent respectively in 2020.

On average, funds of funds with a core style invest in 25 managers. This is more than double the equivalent number for non-core vehicles, which on average select 10 managers ranging between a minimum of six and a maximum of 17.

Older vintage vehicles – those launched between 2001 and 2007 – have historically underperformed, and 2020 was no exception with a total return of -5.1 per cent. However, the sharpest decline in overall performance was reported for younger vehicles with vintages between 2015 and 2020, with a total return of 0.3 per cent, down from the 8.9 per cent recorded in 2019.

Despite delivering average positive net returns for 11 consecutive years, the performance of funds of funds with vintages between 2008 and 2014 also slowed, posting total returns of 1.7 per cent, compared to 6.6 per cent a year earlier.

Iryna Pylypchuk, INREV’s Director of Research and Market Information, says: ‘Funds of funds continue to be an important vehicle for investors; however, the landscape is evolving with clear differences in terms of strategy, style and size, alongside the widening spectrum of target investment routes. This evolution is a direct result of changing investor landscape and a growing appetite for larger, core style funds of funds, predominantly targeting global strategies. Given investors’ changing priorities we expect this trend to continue in the coming years, but it is too early to draw firm conclusions on what the new era funds of funds will look like, and the investments they will target.’