April 24, 2023
19 October 2022, Amsterdam – According to the INREV Management Fees & Terms Study 2022, published today, the average total global expense ratio (TGER) for European non-listed real estate funds based on gross asset value (GAV) was 0.95%.
However, there is considerable variation based on key fund characteristics. Funds with a multi-country and/or multi-sector strategy command higher TGERs than those focused on a single country or sector. No doubt the increased operational costs associated with managing assets in different jurisdictions and across sectors account for a large part of the differential.
Core funds, many with a single country and/or single sector focus, have a lower average TGER of 0.81% (based on GAV) compared to the European ODCE funds, a group of Core – Open end pan European diversified funds with an average equivalent of 0.97%. However, it is worth highlighting that the European ODCE funds have notably lower TGER characteristics than an average multi country – multi sector fund. When ODCE funds are excluded, the range of TGERs for the group of funds with a multi country – multi sector strategy is notably higher.
In terms of style, core open-end funds exhibit the lowest average TGER based on GAV at 0.77% as well as the lowest range of ratios. The overall average TGER for core closed-end funds based on GAV is 1.04%. Non-core closed-end funds have the highest range of TGERs and the highest overall based on GAV average of 1.48%.
Looking at size, non-core funds with less than €500 million gross asset value have both the highest range and overall average total global expense ratio at 1.28%. Conversely, the lowest average TGER of 0.75% on a GAV basis applies to smaller core funds with assets of less than €500 million.
Taken as an average, the three components that constitute the total global expense ratio are disproportionately represented. On a value-weighted and GAV basis, average management fees for all funds equal 0.42%, while performance fees and vehicle costs are 0.32% and 0.21%, respectively.
However, zooming in on the range of the fees and costs on an equally weighted basis, there are notable differences between core and non-core funds. For example, average management fees on GAV make up 0.41% for core and 0.78% for non-core. Performance fees are 0.08% and 0.25% respectively, while vehicle fees for core are 0.36% versus 0.45% for non-core.
Iryna Pylypchuk, INREV’s Director of Research and Market Information, said: ‘It’s clear from this study that fund composition is a key driver of TGER and that the pricing mechanisms are more broadly spread, tailored to a specific fund’s strategy. It is also noteworthy that the range of TGERs for ODCE funds is low, indicating a high level of uniformity and transparency of fees and costs.”