Property FoF Activity Slides but Sector To Pick up

AMSTERDAM-Real estate funds of funds have recorded very low activity in 2009, with just five equity investments of €75 million made to end September into individual non-listed funds compared to 50 in 2008 totaling €548 million, but activity is likely to pick up in 2010, says a recent survey by the locally based European association of property funds, INREV.

The slowdown in activity – which is a further drop from 2007 when 97 investments totalling €2.2 billion were made – shows that fund of funds managers chose to step back from further commitments while the market direction was unclear – plus a continued focus on ensuring existing investments are on track. “However the results also show that fund of funds managers see opportunities opening up for 2010 for un-invested capital with a focus on potential secondary market transactions as well as vintage 2010 funds,” said INREV Research Director Lonneke Löwik.

Two thirds of respondents said the secondary market is now a more important part of investment strategy, and all respondents see opportunities to enter funds at advantageous prices. Other main drivers are immediate access to locations and sectors as well as potential capital growth if units re-value to published net asset value. Of the sample, 93% will consider increasing exposure to existing funds. However, this has not yet translated into investment, with only 4% of funds of funds completing a trade in the last 12 months. Some 96% of respondents cited the inability to price fund underlying assets as the main obstacle.