Examining the role of closed-end real estate funds in adding value to portfolios

There is a different way of looking at closed-end fund performance that may prompt asset owners to ask a few more questions about whether their closed-end fund exposures are delivering in line with their objectives, writes Will Robson.

What is it that investors hope to achieve by placing capital in closed-end real estate funds? Most would say it is to generate attractive risk-adjusted returns, but relative to what?

During the last 12 months, up until recently, markets had been on the rise, driven by strong performance in industrial and logistics assets, according to data from the MSCI Global Quarterly Property Index. Consequently, a closed-end fund manager with an IRR target of 12 percent levered, who has been heavily exposed to the industrial sector has been able to ma sively outperform, in turn being paid hand- some fees for a strategy that is, in essence, simply riding that segment of the market.

Market movements affect all funds and strategies throughout mar