IQ recently caught up with Stafford Biddulph, the incoming Chair of the INREV Performance Measurement Committee. Stafford, who is Head of Performance at Rockspring Property Investment Managers LLP, began his working life in accountancy and moved into the real estate business in 1998.
‘I got into performance measurement by chance,’ he confesses. ‘I was fund accountant for Rockspring’s TransEuropean fund series at the time, and I was asked to explain the spread between its property and fund level returns. On paper the task seemed a straight forward one, but in practice it was extremely complex both in extracting the answer and then simplifying it in financial and performance terms. Well, my response worked and the methodology is still in use today. At our MBO in June 2004 I switched from fund accounting to performance, which has been my home ever since’.
Stafford still tends to look at performance measurement from an accounting perspective. That’s why he believes the whole question of the performance ‘round trip’ – the transition from the asset return to the NAV return – is so important for the industry, and why the INREV Performance Measurement Committee’s efforts in this area are crucial for investors and managers alike. In particular, its current work creating an asset level index should provide the missing piece of the jigsaw in terms of reconciling the two positions. This is one of the main reasons the initiative has received so much support in the industry.
The performance round trip - the transition from the asset return to the NAV return - is so important for the industry
‘Developing an asset level index is a key step in this direction and a project that has been close to my heart in the three years since I joined the committee,’ he continues. ‘We’ve now reached a point where 28 member organisations have committed to provide EUR 150 billion worth of assets for the index, and we’re in the process of creating the IT infrastructure to make data submission as efficient as possible. The plan is to launch the new index at the Annual Conference in 2019 and from there, it will be possible to compare asset and fund-level performance across the European market, and to start unpicking the differences between the two. This is all part of INREV’s role to bring greater transparency to the industry. Investors need to know how comparable real estate vehicles really are, and the performance round trip provides this at every level.’
Stafford emphasises that the Performance Measurement Committee is also focused on other measures of performance that will shine more light on the returns funds have generated for their investors. ‘One key initiative is the development of an Internal Rate of Return (IRR) index, something that we know INREV members are very keen to see, as this is how many investors assess performance over the life of a fund, especially for closed end vehicles. There is a particular interest in being able to compare IRR’s of different fund vintages, as investment timing can have a dramatic effect.’
Investors need to know how comparable real estate vehicles are, at every level.
‘However, to maximise the value of the IRR index, it is also important for us to continue improving the coverage of our historical fund data,’ he stresses. ‘This has been a priority of the committee over the last 18 months or so, and we’ve made considerable progress in boosting samples stretching back to 2000 – although we realise that this is difficult in some cases. Our intention now is to concentrate on those contributors who we know should have the data to hand but may need some extra help extracting it. The rewards should be big – there is now the prospect for a long-run quarterly series on over 300 funds with a current NAV in excess of €200 billion.’
Stafford has found that although many of the Performance Measurement Committee’s projects have statistical outputs, the group attracts some very interesting people from the business. ‘I always look forward to the meetings,’ he says. ‘Members of the committee are often people who like to take a step back from the numbers and think about what they mean, and how they can be used to improve the industry. They also tend to bring a range of different perspectives depending on their role in the industry. And we don’t just talk about how to produce indices, but also how to improve them. One area that we are looking into is the EU Benchmark Regulation (see article on page 8), initially aiming to make sure that INREV’s indices comply with this new regulation, something that is required from the start of 2018. This reflects the fact that a number of our indices have now reached critical mass and are part of the European real estate landscape.’