Larger funds comprising over €1 billion assets under management in Luxembourg show consistent growth despite the country’s GDP contracting in the second quarter of 2022, according to a newly published real estate investment funds survey.
Findings from the Association of the Luxembourg Fund Industry’s (ALFI) ‘Real Estate Investment Funds 2022‘ survey, which surveyed over 600 vehicles, show that Luxembourg continues to be a favourite destination for global institutional investors and fund managers.
Survey respondents included 94 manager-regulated alternative investment funds, 172 reserved alternative investment funds (RAIF) dedicated to real estate, 9 SICAR or investment companies in risk capital and 109 non-regulated vehicles. The increase of RAIFs (28% against 26% in 2021, 22% in 2020) and limited partnership legal forms such as SCS/SCSp enjoying popularity amongst 53% of the surveyed funds reflect a preference for lightly regulated solutions.
The results suggest liquidity management tools have safeguarded open-ended funds which would have otherwise been launched as closed-ended. About 64% of the funds are closed-ended, and restricted open-end funds have remained stable at 23%.
In line with previous fund size findings, smaller funds continue to make up the majority of REIFs, with 46.7% falling in the sub €100 million net asset value (NAV) category, down from 52% last year. The survey results noted a significant increase in funds targeting €400 million+ NAV at 37.8%, up by 5.1% from 2021.
Results also indicate that 46% of funds aim to remain below 20% loan-to-value ratio, while a further 49% aim to remain below the 60% range.
Diversification has become a common strategy in the country, with the multi-sector strategy segment registering 49% allocation. ‘Residential’ tops the single-sector strategy category, followed by ‘office’ and ‘retail’ categories.
66% of surveyed REIFs invest in Europe, whereas 8.2% of funds invest globally, 9.2% in North America and 6.9% in the APAC region. Initiators/AIFMs from Europe (mainly Benelux, Germany and the UK) and the US launched a large number of funds.
The survey confirms the most common basis for management fee calculations is the NAV, with a share of 36%, compared to the gross asset value (GAV) at 22%. Compared to 2020, NAV calculation frequency figures show that funds tend to opt for the quarterly NAV reports, marking a sharp decrease in semi-annual NAV.
While ‘core’ funds represented the dominant investment style, ALFI noted a surge in ‘value-added’ investment style over the previous 12 months. Additionally, institutional investors aiming for larger investments make up the majority of REIFs. Consequently, there tends to be a smaller number of investors per fund.
A majority of the investor base comprises Europeans, followed by Americas and ‘highly diversified’ sources. REIFs are widely distributed across a minimum of two to a maximum of six-plus countries.
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