Transparency and Performance of the European Non-Listed Real Estate Fund Market

This is the second in a series of academic papers that INREV will publish. Going forward INREV plans to invite the academic community to research the European non-listed real estate market in more detail.

Over the past decade, the European institutional non-listed real estate fund market has matured into an investment category that consists of 472 funds, representing €227 billion of gross asset value. But maturity cannot be measured by numbers alone. In this paper, we examine the recent evolution of the non-listed fund market with respect to transparency and performance. In line with the private equity literature, we analyse the returns and fees that investors face when investing in non-listed real estate funds. Our results show that non-listed real estate funds have delivered moderate but stable total returns over the past thirteen years. Compared to Europe’s public real estate market, the non-listed core fund index yielded an average return of 5.2% which is more than 2.0% lower than the public real estate index return, but at a risk (standard deviation) of 9.7%, which is less than a third. The total fee load of non-listed real estate funds (2.2%) is low compared to private equity (7.0%). This fee could be ened back by selecting the funds that rank highest on their sustainability performance, as our analysis shows a 2.8% return spread between the top and bottom Global Real Estate Sustainability Benchmark (GRESB) deciles. A large fraction of this return pattern, however, relates to the associated variation in fund leverage. Hence, transparency regarding non-listed fund characteristics is key and although the market is not there yet, it is gaining momentum and relevance.