Asset Level Index Focus Group

Bringing a new level of understanding to non-listed real estate

In direct response to an industry request, INREV has begun to test the concept and viability of developing an asset level performance index, which would be a natural extension to INREV’s suite of indices. This is being undertaken by the Asset Level Index Focus Group, which includes members of the INREV Performance Measurement and Benchmarking Committee.

The project was initiated in 2015 and the focus group, which has rapidly expanded since the project began, to reach 25 members currently, has already completed the preliminary due diligence stage, assessing the level of demand for an asset level index among the members.

‘The early stages of the due diligence phase showed that there is a keen appetite and strong support among the INREV membership for us to investigate an asset level index further,’ says Nick Blakemore, Chair of the Asset Level Index Focus Group. ‘It is an exciting time for INREV and its members to work together to produce something that will be of great value to the whole industry’.

There is a keen appetite and strong support among the membership for us to investigate an asset level index further.

‘The main reason for the strong demand is that international investors and fund managers require this kind of information for risk management and for setting their strategies, whether it be region specific or global. They need to be able to analyse how the different types of assets – for instance across countries and across sectors – are contributing to performance. At the same time the movement towards more analytics means that there is a strong desire to better understand performance, and being able to attribute a fund’s relative performance to the underlying assets using an asset level index is a huge step in the right direction. Right now this is a challenge, given the lack of good quality data currently available in the wider European market.’

‘The focus group has been working up an asset level data delivery template, which has gone through many rounds of testing.’

‘We are now proceeding with a detailed examination of the feasibility of this Index,’ Nick continues. ‘The aim is to produce the conclusions of a proof of concept study and initial index outputs by the end of 2016. The most important next step along this road is to finalise the data delivery template – a list of data fields that are needed to produce asset level performance figures – and a guide to the definitions, calculations and methodologies needed to construct an asset level performance index.’

The Holy Grail is to link vehicle level and asset level performance information.

‘At this early stage we want to keep it fairly simple because we are aiming for European-wide adoption, and therefore the template has to strike the right balance of being easy enough for members across Europe to submit data but detailed enough for a good level of analysis to be carried out on asset level performance. We can add, and would like to explore, more layers of granularity as the Index develops, but the first step is to get the index off the ground.’

‘The output of this first phase is likely to be at a high level – income return, capital growth and total return by country and by real estate sector, with historical data going back two or three years. But this isn’t yet set in stone, as the group still has to determine how far back in history to go and whether this level of detail can be obtained in the first stage. As the Index evolves, the plan is to add characteristics which will enable more detailed analytics to be carried out. ‘The Holy Grail is to link vehicle level and asset level performance information’, says Nick. ‘This an exciting project that will involve a lot of commitment and hard work, both from INREV and its members. The result will be worth it, as there is genuine added value in an asset level index, something that will benefit the whole of the European property industry.’

Nick Blakemore is Chair of the Asset Level Index Focus Group and Director, Portfolio Analysis at M&G Real Estate