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The return of investment funds

30 June, Il Sole 24 Ore

It looks like the golden age for property funds and real estate asset management instruments in Italy. According to the date published by Scenari Immobiliari in its 32nd reports on “Property funds in Italy and abroad”, these vehicle companies are steadily growing, having reached globally 2,830 billion euro at the end of 2017, registering an 8% growth from the previous year.

In Europe, there are 1,750 vehicles with total assets equal to 1,050 billion euro, growing by 10% yearly. In Italy, the NAV of property funds reached 53 billion euro, having increased by 10.4% from the previous year and it’s expected to close 2018 with 53 billion euro. It’s certainly a considerable growth, considering that the Nav of Italian funds in 2010 amounted to 34 billion and it’s now 55 billion, having gone from 305 vehicle companies to the current 430, despite the funds that reached their maturity. What’s the reason for such an increase in a period so difficult for real estate?

The Italian real estate financial market is worth over 62 billion euro in terms of assets (on 30th June 2017) and is divided between property funds, Siiq and real estate companies listed on the stock exchange. Property funds have been present in the country since 1998, and they consist of vehicles managed by asset management companies operating in the real estate sector which invest at least two-thirds of their assets in real estate. These are closed-end instruments, meaning that it’s not possible disinvesting before the end of the duration, which is long-term.

Property funds were created for retail investors, implying the mandatory listing on the stock exchange, to allow investors to exit from the investment before its liquidation and to grant a high level of transparency of the investments, the performance etc. With the time, however, the funds dedicated to institutional investors had increased, which are not listed and don’t disclose information to the public. This typology had become the predominant one, showing the limits of the retail real estate investment funds. If we consider property funds, in fact, 84.5% is represented by institutional funds, while retail funds are only 3.3% of the market. “Property funds turned out being the ideal instrument for big investors, which underwrite the shares and appoint specialised companies for their management, delegating the decisions concerning the use and the management of the assets”, explains Mario Breglia, Scenari Immobiliari president. “After all, retirement funds, social insurance funds and insurance companies have limited access to direct investments. Hence, acting through a property fund is the right decision both from an efficiency and regulation point of view”.

Moreover, the asset manager (which must be authorised by the authorities in charge and is monitored by the surveillance authority) guarantees the professional management of the assets, the best taxation and the neutrality in the investment decisions, reducing the risk of interest conflict. In the case of a social insurance fund investing the capitals of its subscribers, it’s important for these that any investment in a sector surely not easy such as real estate would be carried out in a “protected” environment and by a specialised company subject to the control of the surveillance authority.

Furthermore, big investors don’t need to liquidate their investment before the fund maturity, allowing the asset managers to rotate the portfolio without the need of large provisions and optimising the purchase, operation, rental and sale operations.

Besides, the growth of property funds is also based on the realisation by big investors that real estate can be a competitive asset compared to other investments. Especially in the last two years, the global economic situation has improved, interest rates have reduced, and we’ve witnessed to a substantial lack of high-quality real estate assets, which are the ideal investment for big investors.

Source: Il Sole 24 Ore

Translator: Cristina Ambrosi

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