Funds of funds globally saw their assets under management (AUM) reach a record high of US$53.2 billion at the end of 2020, marking their third consecutive year of growth, a new survey finds. Results of the survey, commissioned by the Asian Association for Investors in Non-Listed Real Estate Vehicles (ANREV), the European Association for Investors in Non-Listed Real Estate Vehicles (INREV) and the National Council of Real Estate Investment Fiduciaries (NCREIF), run parallel with findings of the 2021 Funds of Funds Study jointly published by INREV and ANREV.

Both studies highlight investor interest in funds of funds that offer the benefits of scale, sector and geographic diversification across a wide array of non-listed estate investment strategies, and that follow a core strategy. The combined data reflect the continuing trend toward investor consolidation as well as greater focus on strategic reviews – factors which are likely to drive demand for funds of funds targeting global strategies.

Funds of funds with a global strategy make up the largest share of the INREV/ANREV’s funds of funds  universe, representing 70% of the total by number, and 95% by the total net asset value (NAV). Those with a European investment strategy represent 22% of the universe by number (4% of total NAV), while those targeting Asia-Pacific account for 9% by number and only 1% of total NAV. The universe does not include a single fund of funds targeting North America.

Funds of funds with a core style make up almost half (48%) of the universe by number but 94% of total NAV. Core-style funds of funds tend to be large with an average NAV of US$2.2 billion. However, the three largest core-style funds of funds have an average NAV of around US$6.7 billion, representing 78% of the total value of the funds of funds universe.

Value-added funds of funds account for just 5% of total NAV, with an average NAV of US$137 million per vehicle. Funds of funds with an opportunity investment style make up the remaining 1%, with the average NAV per vehicle being US$109 million.

In the 2021 Funds of Funds Study, core-style funds of funds outperformed non-core for the fourth time in the last five years, with returns of 1.9% and minus 3.1% respectively in 2020. On average, funds of funds with a core style invest in 25 managers. This is more than double the equivalent number for non-core vehicles, which on average select 10 managers ranging from a minimum of six to a maximum of 17.

Older-vintage vehicles – those launched between 2001 and 2007 – have historically underperformed, and 2020 was no exception with a total return of minus 5.1%. However, the sharpest decline in overall performance was reported for younger vehicles with vintages between 2015 and 2020, with a total return of 0.3%, down from the 8.9% recorded in 2019.

Despite delivering average positive net returns for 11 consecutive years, the performance of funds of funds with vintages between 2008 and 2014 also slowed, posting total returns of 1.7%, compared to 6.6% a year earlier.

Amélie Delaunay, director of research and professional standards at ANREV, says: “Funds of funds continue to play a role in the different routes to access real estate markets all around the world. We see an increase in the domination of global core funds in terms of strategies, suggesting that global diversification appeals more to investors than just a regional one.”