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Asset Level Index

The Asset Level Index initiative delivers on INREV’s mission to further transparency of the non-listed industry by developing global market information to support peer-to-peer comparison.

Introduction

In the summer of 2015, Deka and Deutsche Bank, members of both INREV and the BVI, approached INREV to discuss requirements from the BVI’s risk controlling group for a comprehensive set of global indices to measure the performance of real estate assets.

The initiative rapidly gained traction and support from INREV members and other industry groups outside of Germany (ROZ, IVBN, UK Data Quality Group).  A focus group of ~30 individuals from 18 companies and NCREIF has been working together to test the concept and viability of asset level performance indices.

The Asset Level Index initiative represents a major step forward in the transparency of the non-listed real estate industry, with the key motivations for this initiative being:

  • The cost-effective provision of a pan-European – potentially Global – Index
  • The fact that INREV’s existing, proven and easy to use analytical tools would apply to the Asset Level Index, with instant access and flexible index customisation rating high
  • The potential for Asset Level to Fund Level reconciliation, regarded as a significant innovation

INREV’s advantages include its experience in index construction and production, and its good working relationships with NCREIF and ANREV, which could provide the opportunity to extend an asset level index globally.

INREV therefore proceeded to undertake the Asset Level Index initiative, as a direct response to requests from and a need within the real estate industry, for additional analysis tools to help explain the drivers of fund performance.

The Asset Level Index initiative delivers on INREV’s mission to further transparency of the non-listed industry; it further satisfies the strategic objective of further developing global market information to support peer-to-peer comparison.  Asset level indices are a natural extension of INREV’s current suite of market information.

At the INREV Annual Conference 2016 INREV announced that it would commence on a proof of concept phase to test the concept and viability of developing an asset level performance index. 

At the INREV Annual Conference 2017 presented an update on the status of the project and made a request for members to participate to this strive towards transparency for the real estate industry.
 

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Presentation - Striving for greater transparency: the asset-level index  

Published on 22 Nov 2017

Henri Vuong plotts the progress of the asset level index project and explains the importance of this project for the industry and the gain for members. She explains ‘We are aiming for one big thing, to strive towards greater transparency for our industry’. The investment market that we work in has changed rapidly as have our information needs. There is a genuine need to understand our investment needs at a fund and asset level.

Information is important, we need more choice, we need consistency. The asset level index will provide information at your finger-tips, to compare, to create customised indices and will be instantly downloadable.

We achieve this milestone we need to do it together; members are asked to invest a little now to save a lot later. Who’s in? 

To be a founding member of the asset level project contact henri.vuong@inrev.org

Project background

What was the initial driver of this initiative?

In the summer of 2015, Deka and Deutsche Bank, both members of both INREV and the BVI (German Investment Funds Association), approached INREV to discuss their requirements for a comprehensive set of indices to measure the performance of real estate assets across the world.

This requirement was driven by regulations on risk metrics disclosures, which must be based on robust indices representing the performance of global real estate asset markets.

Why did INREV decide to explore this initiative?

There was strong appetite from, and a need within the membership, for information that will allow the industry to better understand the drivers of fund performance.  This initiative will help the industry strive towards better transparency. Together with ANREV and NCREIF, this initiative will allow INREV to move towards the provision of a robust and highly dependable global index.

How is this initiative in-line with INREV’s mission statement and strategic goals?

The Asset Level Index initiative delivers on INREV’s mission to further transparency of the non-listed industry; it further satisfies the strategic objective of further developing global market information to support peer-to-peer comparison.

Why has INREV been selected for this project?

INREV was approached by its members due to its experience in index construction and production, as well as its independence and not-for-profit status and close working relationships with NCREIF and ANREV. 

Is this information missing from the market?

There are many countries across Europe that do not have a robust index and that European indices are dominated by the countries like Germany, Italy, The Netherlands, UK and France. This index will provide greater granularity and a greater analysis of more European countries.

Why will this service be different to anything that is currently available on the market?

INREV promotes a self-service model whereby members can log in anytime anywhere to access information instantly.  Members will be able to make their own customised selections, thereby cutting out lag time in waiting for a response from service teams.

Through the INREV Fund Index INREV already has fund level performance data of more than 300 funds. This presents an opportunity to potentially expand coverage and provide members access to a large European asset level database covering more than just major European real estate markets.

Project scope and deliverables

How has the scope of the asset level index project been defined?

The scope for the asset level index project is defined as follows:

  1. To produce a set of indices that measure the performance of real estate assets across Europe, with the potential to expand to global
  2. To create an online tool that allows members to build their own customised index
  3. To explore the feasibility of asset to fund level reconciliation

What are the deliverables?

There will be three main deliverables:

  1. Quarterly and annual snapshots available to all market participants, both INREV members and non-members. View mock-up of a quarterly snapshot below.
  2. Quarterly and annual publication report available to all INREV members. View mock-up of a quarterly report below.
  3. Online Index Analysis Tool available to data contributing managers and investor members that grant explicit permission for their fund managers deliver data to INREV. View mock-up of Index Analysis Tool below.

What will be the start date of the index series?

Historical data collection is requested from 31 of December 2013, therefore the index history will start at 2014.

When will the Asset Level Index be launched?

Launch of the consultation is planned for the INREV Annual Conference 2019.
 

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Project governance

How is the project being governed?

A focus group, named the Asset Level Index focus group, consisting of INREV member volunteers was formed to work closely with INREV to carry out due diligence, evaluate the feasibility and to work on a proof of concept for the project.

The focus group has been evaluating key items such as data fields and definitions, calculation and methodology, validation and visualisation and the analysis and use of data. 

The focus group work alongside the INREV Performance Measurement committee.

This process follows a similar procedure to the development of INREV’s existing indices.

How many members are on the focus group?

Around 30 individual members representing 18 different companies have been working diligently on the proof of concept.  The focus group also includes NCREIF’s CIO (Chief Information Officer).

How often does the focus group meet?

Focus group calls have been taking place on a weekly basis, and members join the calls depending on the focus of the discussions taking place.

How is the focus group arranged?

The focus group is assigned an overall focus group chair to steer the calls.

The focus group is split into sub working groups to tackle different technical aspects of the project.  Each working group is assigned a working group chair and each group has specific objectives to tackle.

How are decisions made?

A three-layer approval process:

  1. Sub group approval - decisions need to be approved by the working group before being brought to the asset level focus group
  2. Asset level focus group approval - decisions are brought to the overall asset level focus group for approval being brought to the performance measurement committee
  3. Performance measurement committee approval - decisions are brought to the performance measurement committee before being presented to the INREV management board

INREV’s management board are updated on a quarterly basis and provide approval for each major step in the project.

Commitments

What does the founding member commitment request entail for fund managers?

  1. To provide INREV with quarterly data for real estate assets that are under direct management for a minimum period of three (3) years from consultation launch going forward;
  2. To provide INREV with historical quarterly data for real estate assets that are under direct management for fa period starting from 31 December 2013;
  3. To pay a non-refundable one-off investment amount of EUR 10,000 that will be principally used to fund development costs.
  4. Download detailed commitment presentation below.

Download founding fund manager member commitment letter below.

What does the founding member commitment request entail for investors?

  1. To pay a non-refundable one-off investment amount of EUR 10,000 that will be principally used to fund development costs.
  2. To motivate and provide permission for their fund managers to provide INREV with data for real estate assets that they are invested in. 
  3. Download founding investor member commitment letter below.

Why does INREV need commitment from its members?

INREV is asking for commitments to safeguard against two major risks, financial risk and low coverage which will mean low representation of the market.

What commitment size is required to start this project?

A minimum of 25 signed commitments and commitment to deliver data on assets representing a total market value of at least EUR 100 billion.

How many members have already committed to support this initiative?

As of 31 July 2017, 28 members have submitted a signed commitment letter. Committed assets represent a total market value of EUR 150 billion as at end 2016 and at least 6,000 assets.
 

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Data collection, validation and quality

Which data fields do INREV intend to collect?

Download data delivery template below.

How will data be collected?

Data will be collected via an online data input tool, where members will be able to upload the Excel data delivery template.  The system will then run a number of validations to ensure the quality of the data received.  Members will be asked to approve data before submission to INREV.

How will data validation be carried out?

The validation process will include three major steps:

  1. Systems based validation – the system will use rules-based algorithm to validate data.
  2. Member approval – the member will need to approve information before submission to INREV
  3. INREV verification – the INREV team will verify information before inclusion to the database

Can INREV use the fund level data for validations?

Yes absolutely, the INREV fund level data will be used for checks and balances to the asset level data.

How will data confidentiality be managed?

INREV will not disclose or share any asset level data provided by any company without the explicit approval of that company.

INREV will only use data provided by any company in a composite where the asset, the vehicle, the manager and any investor are not identifiable.  

What performance will be measured by the headline Asset Level Index?

The headline asset level index will measure performance of the market, which will include standing investments, transactions and developments.

What performance will be measured for individual assets?

Quarterly and annual performance will be measured net of costs.

What type of returns will performance measure?

Quarterly and annual performance will be measured by time weighted returns over the measurement period.

Income return, capital growth and total return will be calculated for the measurement period.

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