The share of total capital raised for nonlisted real estate funds of funds doubled in 2017, showing that the funds remain important vehicles that offer investors significant diversification options, according to the latest ANREV/INREV Funds of Funds Study.
In total, $160.2 billion of fresh equity was raised for nonlisted real estate in 2017, with $8.5 billion, or 5.2 percent, destined for funds of funds. This is a record level of new capital and a significant jump from the $3.2 billion, or 2.5 percent, of total capital that was raised in 2016.
Funds of funds delivered positive returns to their investors across different styles, structures, regional strategies and size. The results show that one in seven investors plan to increase their allocations to funds of funds over the coming two years. The sector achieved an annual return of 5.1 percent over 2017, slightly down on the 6.2 percent achieved previously.
Global strategies dominate
Funds of funds with a global strategy comprise the largest share of vehicles in the universe, both by number and size. Global-strategy vehicles make up just under 50 percent of the overall vehicles and represent 78.6 percent of total NAV.
Vehicles with a European strategy followed next, representing 33 percent, while those targeting Asia Pacific represent 20 percent. Strategies targeting North America were minimal.
All regional strategies delivered positive returns, but those targeting Asia Pacific especially so. After a few years of subdued performance, Asia Pacific funds of funds posted a remarkable comeback, with returns of 15.1 percent. In 2017, a strong come back from the –3.3 percent recorded in 2016. In comparison, European and global funds generated 6.6 percent and 4.4 percent, respectively, a similar performance to last year.
Confidence in core vehicles
The funds of funds universe is almost evenly split across the three main investment styles: core, value-added and opportunity. However, core funds are much larger in size than the other two, making up just over four-fifths, or 83.1 percent, of total NAV. They also invest on average in 20 vehicles and 16 managers, which is double the number for value-added and opportunity funds of funds.
Amélie Delaunay, director of research and professional standards at ANREV, commented, “The scale of the returns in Asia Pacific in 2017 are significant, demonstrating their increasing appeal in the region. The results generally reflect good health within the funds of funds segment, showing that they continue to offer smaller investors in particular an important diversification tool and the opportunity to create a nice blend of different funds.”
