MARCH 1, 2022

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The last frontier: Rating unlisted funds will meet the increasing need of investors for market transparency

by Steven Devaney, Jane Fear and Maurizio Grilli

Unlisted real estate funds arguably offer a closer experience to investing in the private real estate market directly than listed vehicles such as REITs.

The units or stakes in unlisted funds are generally priced with reference to net asset values (NAV), whereas REIT share prices can fluctuate significantly around NAV and be influenced by trends impacting equities generally.

That said, it is acknowledged that fund valuations may be influenced by appraisal smoothing, whose effects on private real estate indexes are well documented. Despite growth in the secondary trading of units, investing into unlisted funds does not offer the same liquidity as investments in REITs, although this will be less important for investors with long-term horizons. There are pros and cons with each route, but unlisted funds should — in principle — offer a very good substitute for privately held real estate in investment portfolios, with a wide range of vehicles that vary in the sectors, l

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