Money-weighted metric for closed end funds provides better comparability with other asset classes
29 April 2020, Amsterdam – Industry bodies INREV, ANREV and NCREIF have launched the first Global IRR Index, providing data on the since-inception performance of value added and opportunity, closed end, non-listed real estate funds in Asia Pacific, Europe and the US.
The best average internal rate of return (IRR) across all three regions was 18.39%, recorded by funds with a first closing in 2013. But this vintage was also marked by regional variances. Asia Pacific saw a wider spread of returns than other regions which could be explained by the generally more diverse strategies pursued in this region. And US returns for 2013 were likely driven by substantial investments in domestic residential assets, which performed well in subsequent years.
Funds launched between 2011 and 2016 posted the highest average IRRs across the time series of the index. Those with the lowest average IRRs were launched between 2005 and 2007. The lowest average IRR in the entire index was -1.02%, which was recorded for funds started in 2006.
The 2008 vintage revealed the widest spread between IRR quartiles, ranging from 12.54% in the top quartile to -2.06% in the lower quartile. These results probably reflect the diversity of strategies and stock selection employed by managers and investors dealing with the challenges of the 2008 financial crisis.
This consultation index is an extension of the ongoing collaboration between INREV, ANREV and NCREIF to provide a suite of global indices, which already includes the Global Real Estate Fund Index. These joint initiatives further transparency to the global non-listed real estate investment industry and harmonise performance metrics across regions.
Henri Vuong, INREV’s Director of Research and Market Information, said: ‘This is an important evolution of the original INREV IRR Index. As a money-weighted measure, it provides global investors and managers with an additional view of fund performance, enabling them to assess whether a fund’s cashflow is sufficient to meet its specific investment goals. Given the current challenging circumstances presented by the COVID-19 pandemic, this perspective will no doubt be particularly relevant.’
Amélie Delaunay, Director – Research & Professional Standards for ANREV, added: ‘The new index helps to make real estate more easily comparable with other asset classes, which routinely use IRR to gauge performance. This is particularly valuable for investors making global capital allocation decisions across their portfolios.’
Dan Dierking, President of NCREIF, stated: Collaboration and harmonisation are more important than ever at this time of uncertainty, and initiatives such as the Global IRR Index become very relevant indeed.’
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Notes to Editors
About the Global IRR Index
The Global IRR Index measures the internal rate of return, since inception, of closed end, non-listed real estate funds with a non-core strategy. It measures performance net of fees and other costs and represents the aggregate investor return.
This first consultation edition of the index is made up of 294 funds (258 value added and 36 opportunity) with vintages dating from pre-2002 to 2018. Of the total, 62 funds are from Asia Pacific, 102 are European and 130 are from North America.
INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, was launched in May 2003 as a forum for investors and other participants in the growing non-listed real estate vehicles sector. The association represents and reflects an industry with a total value of €2.8 trillion and INREV members deliver €385 billion of stimulus to the real economy of Europe.
INREV has 464 members which include 86 of the largest institutional investors as well as 40 of the 50 largest real estate fund managers, plus banks and advisors across Europe and elsewhere.
The non-profit association is focused on increasing the transparency and accessibility of non-listed vehicles, promoting professionalism and best practice, and sharing knowledge. It is based in Amsterdam, the Netherlands.
Based in Chicago, the National Council of Real Estate Investment Fiduciaries (NCREIF) is the American association of institutional real estate professionals who share a common interest in their industry. This includes investment managers, plan sponsors, academicians, consultants, appraisers, CPA's and other service providers who have a significant involvement in institutional real estate investments. They come together to address vital industry issues and to promote research. NCREIF acts as a non-partisan collector, processor, validator and disseminator of real estate performance information, including several quarterly indices.
ANREV is the Asian Association for Investors in Non-Listed Real Estate Vehicles, a not-for-profit organisation based in Hong Kong. ANREV's agenda is driven by the members, in particular the investors, and is focused on improving transparency and accessibility of market information, promoting professionalism and best practices, sharing and spreading knowledge. Fund managers, investment banks, lawyers and other advisors provide support in addressing key issues facing the Asian non-listed private equity real estate fund markets.
ANREV is a sister organisation to INREV in Europe and works with a number of other associations across Asia Pacific and North America on research and professional standards. http://www.anrev.org