Europe’s non-listed funds expense ratios highlight industry transparency

The 2018 INREV Management Fees & Terms Study highlights Europe’s non-listed real estate industry’s dramatic leap in transparency, achieving a record response rate from members of  INREV — the European Association for Investors in Non-Listed Real Estate Vehicles.

A total of 418 vehicles provided data to the study — marking a 10-year high. Of this number, 155 funds delivered data on their total expense ratio (TER), compared with 42 in the previous study, and 111 vehicles provided details of their real estate expense ratios (REER).

The study revealed that the European non-listed real estate all vehicles average TER was 0.86 percent of gross asset value on an equally weighted basis and before performance fees.

Funds in the residential sector displayed the lowest TERs of all vehicle types at 0.54 percent, outstripping other key sectors, such as office at 1.02 percent, and retail at 0.95 percent.

In terms of vehicle styles, core funds recorded a lower than average TER of 0.79 percent, demonstrably different from the higher than average 1.19 percent TER of value-added funds.

These relative spreads were mirrored in terms of vehicle structures, with the average TER for open end funds (the majority of which are core) at 0.66 percent; while closed end funds (which adopt a mix of core, value added and opportunity strategies) hit a TER of 1.18 percent.

Economy of scale seems to have an impact as the study identified size as an important determining factor for total expense ratios. Larger vehicles (more than €1 billion/$1.2 billion in value) achieved a lower average TER of 0.58 percent; medium sized funds (€500 million to €1 billion/$588 million to $1.2 billion) reached 0.71 percent; and small funds (less than €500 million/$588 million) had the highest average TER by comparison, at 1.07 percent.

There was a significant difference in the expense ratios of funds with different vintages. Those completing a first close from 2008 onwards — just after the great financial crisis — had an average TER of 0.96 percent, compared with the considerably lower 0.49 percent recorded by older funds launched before 2001.

Funds with ambitions to maintain gearing levels below 40 percent demonstrated an average TER of 0.66 percent, significantly lower than the 1.04 percent recorded by their counterparts with gearing levels above 40 percent.

“Given the increasing need for clarity on fees and costs, this edition of the study is particularly pertinent,” said Henri Vuong, INREV’s director of research and market information. “Thanks to the record number of participants this year, we’ve been able to provide a uniquely comprehensive picture of the current situation. The study is further evidence of how the non-listed real estate industry is delivering against the transparency agenda.”