Last year was a good year for funds of funds, which earned a return of 6.7% in 2018 – the sixth consecutive year of positive performance – according to the latest ANREV/INREV Funds of Funds Study. Though slightly down on the 8.4% earned in 2017, funds of funds continued to deliver positive returns to investors, whether broken down by style, structure, regional strategy or size.
Asia-Pacific funds of funds returned 1.3% in 2018 following a strong showing in 2017 of 12.8%. This follows a long-term trend of volatility experienced by Asia-Pacific funds of funds over the years. In comparison, funds of funds with a global strategy outperformed to deliver a total return of 6.8%, while those with a European strategy saw returns of 6.6%.
Funds of funds account for US$31.5 billion or 1.3% of the gross asset value (GAV) of non-listed real estate vehicles worldwide, according to the ANREV/INREV/NCREIF Fund Manager Survey 2019.
The performance of both core and non-core (both value-added and opportunity) funds of funds continued to move in the same direction, with core funds of funds outperforming non-core with returns of 7.2%, slightly down on the 8.6% seen last year but broadly in line with the 7.4% seen in 2016. Non-core meanwhile returned 3.1%, slowing down from 7.3% the year before.
Open-end vehicles continued their three-year run of outperformance over closed-end vehicles, delivering a total return of 7.2% (slightly down from 8.8% in 2017) compared with the 1.3% from closed-end funds, which fell from 5.6% the year before. This is an interesting trend considering that closed-end funds outperformed open-end funds in seven of the past 12 years.
Vehicles of all sizes delivered positive returns in 2018, with large-sized vehicles returning a total of 7.3%. These outpaced medium-sized vehicles, which posted a return of 3.8%, and smaller vehicles, which returned 0.6%.
Amélie Delaunay, ANREV’s director of research and professional standards, says, “This year’s study further strengthens the funds of funds’ proposition as an important vehicle within the non-listed real estate space, with continued positive returns for investors. Given their diverse investment in funds, joint ventures, club deals and debt funds, funds of funds have become excellent conduits for global real estate investment strategies, offering significant sector and regional diversification options.”