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Majority of institutional funds offer exit route, says Inrev


The majority of European non-listed real estate funds are designed to allow investors to exit their investments, according to an Inrev study.

The majority of European non-listed real estate funds are designed to allow investors to exit their investments, according to an Inrev study.
The Inrev Liquidity Provisions Study found that 89 per cent of institutional funds offered investors an exit route whether through redemptions or trading or a combination of both. These provisions are often irrespective of whether the fund is closed ended or open ended.
Value added funds offer the most liquidity with around 94 per cent including exit options but core funds are not far behind at 84 per cent. Opportunity funds are the most illiquid style with just three per cent offering exit options. This style of fund is designed to have a shorter lifetime which results in fewer structural liquidity requirements from investors.
‘The results refute the view that non-listed real estate funds can not provide liquidity for investors. They also demonstrate that there is a spectrum of liquidity across the funds universe rather than clear-cut distinctions between open-ended and closed ended funds. The design of liquidity provisions is clearly individual to funds rather than categorised solely by structure,’ says Lisette van Doorn, chief executive of Inrev.
Recently investors have reviewed early exit routes for their fund investments as they wrestle with allocation issues. However, in practice investors have found it difficult to exercise these liquidity provisions.

‘There is more pressure on investors to reduce property allocations due to the denominator effect or to re-balance allocations within their property portfolio,’ says Andrea Carpenter, director of research and market information for Inrev.
‘However, investors are often perceived as being ‘distressed sellers’ if they look to trade now resulting in different pricing expectations between buyers and sellers. Meanwhile, fund managers offering redemptions have been under pressure to meet requests from investors at a time when liquidity is more likely to be insufficient.’
Just 22 funds out of a potential 127 experienced trades in the last 12 months. These totaled EUR655m but funds said they expected increased trading in the future. In addition, 14 out of 51 funds experienced redemptions which amounted to EUR571m but the funds expected less redemption activity going forward.
Inrev says the interest in exit routes from investors now could stimulate higher use of liquidity provisions in the future. As investors become more familiar with the possibilities of exercising liquidity options it could result in more activity in the long-term and a larger and more formalised secondary market. Investors interviewed for the study said the development of a secondary market was important.

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