As illiquidity continues to be an issue in some direct property funds, interest is being driven towards funds investing in listed real estate.
Data from Morningstar shows investors are shunning direct property – the IA Direct Property sector suffered outflows every month last year.
In December, over £440 million (€519 million) was withdrawn from the sector, while returns averaged in the red.
Aberdeen Standard Investments’ (ASI) European Real Estate Share strategy – which has seen cumulative returns of around 70% over the past five years –invests primarily in Reits rather than direct property and has seen more interest in the fund.
“One thing that has supported this are the issues faced by direct property funds – specifically in the UK – where they have had a very high concentration in retail assets like shopping centres or retail parks. It makes vehicles like ours much more attractive,” Sanjeet Mangat, investment director and fund manager of the fund, tells Funds Europe.
As liquidity becomes more of an issue, cash convertibility is also crucial. According to Mangat, about 95% of the ASI European Real Estate Share fund can be liquidated in a week.
“Direct property funds might want to consider having more of a liquidity buffer,” she says. “Rather than having 10% cash, maybe those funds want to invest 10% into a fund that invests in listed real estate, then you’d have a Reit buffer, because what are you earning on cash these days?”
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