Funds of funds post record AUM of US $ 53.2 billion
Funds of funds around the world saw their assets under management (AUM) reach a record high of US $ 53.2 billion at the end of 2020, marking their third consecutive year of growth, according to a new survey. Results of the survey, commissioned by the Asian Association of Unlisted Real Estate Vehicle Investors (ANREV), the European Association of Unlisted Real Estate Vehicle Investors (INREV) and the National Council of Real Estate Investment Trustees ( NCREIF), parallel the conclusions of the 2021 fund of funds study published jointly by INREV and ANREV.
Both studies highlight investor interest in funds of funds that offer the advantages of scale, sector and geographic diversification across a wide range of unlisted real estate investment strategies, and that follow a strategy basic. The combined data reflects the continued trend of investor consolidation as well as a greater focus on strategic reviews – factors that are likely to drive demand for funds of funds targeting global strategies.
Global strategy funds of funds constitute the largest part of the universe of funds of funds of INREV / ANREV, representing 70% of the total in number and 95% in total net asset value (NAV). Those with a European investment strategy represent 22% of the universe in number (4% of total NAV), while those targeting Asia-Pacific represent 9% in number and only 1% of total NAV. The universe does not include a single fund of funds targeting North America.
Fund of funds with a basic style represent almost half (48%) of the universe in number but 94% of the total net asset value. Core style funds of funds tend to be large with an average net asset value of US $ 2.2 billion. However, the three largest core style funds of funds have an average net asset value of approximately US $ 6.7 billion, which represents 78% of the total value of the universe of funds of funds.
Value-added funds of funds represent only 5% of total net asset value, with an average net asset value of US $ 137 million per vehicle. Funds of funds with an opportunity investing style account for the remaining 1%, with the average net asset value per vehicle being US $ 109 million.
In the 2021 fund of funds study, core style funds of funds outperformed non-core funds for the fourth time in the past five years, with returns of 1.9% and minus 3.1% respectively in 2020. On average, funds of funds with a core style invest in 25 managers. That’s more than double the equivalent number for secondary vehicles, which select an average of 10 managers ranging from a minimum of six to a maximum of 17.
Older vehicles – those launched between 2001 and 2007 – have historically underperformed, and 2020 was no exception with an overall efficiency of minus 5.1%. However, the biggest drop in overall performance was reported for younger vehicles with vintages between 2015 and 2020, with a total efficiency of 0.3%, down from the 8.9% recorded in 2019.
Despite positive average 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%, down from 6.6% a year earlier.
Amélie Delaunay, Director of Research and Professional Standards at ANREV, said: “Funds of funds continue to play a role in the various avenues of access to real estate markets around the world. We are seeing an increase in the dominance of global core funds in terms of strategies, suggesting that global diversification is more attractive to investors than just regional diversification. “