The survey, based on the Luxembourg REIF industry’s year-end 2012 data, was released to coincide with an Alfi conference on alternative investment funds, which ended yesterday in Luxembourg.
Closed-ended and closely-held by institutions
To start with, the average Luxembourg REIF is likely to be closed-ended, given that roughly two out of three of them (68%) are, the statistics showed.
In a statement summarising its findings, Alfi noted that this indicated the inherent illiquidity of real estate as an asset class, and the potential difficulties in some cases of achieving investor liquidity on demand.
Luxembourg REIFs tend be favoured by “small groups of institutional investors”, with 81% having fewer than 25 investors in them. Only 3% reported having more than 100 investors, the Alfi research showed.
Although umbrella fund structures remain popular in the Luxembourg REIF sector, for practical and cost considerations, the trend over the last few years, the Alfi research reveals, has been towards what it says has been “a simplification of structures and strategies”.
More than two-thirds of the funds surveyed, or 69%, have a single compartment structure, including approximately half, or 51% of the core funds, which represented 45% of the fund launches in 2012.
Core funds are mostly closed-ended (66%), with a third of them offering some form of liquidity to investors.
Numbers down slightly in '12
The number of new REIFs launched in Luxembourg in 2012 was down slightly from the previous year, coming in at 22, compared with 26 in 2011.
There are now some 215 direct REIFs in Luxembourg, more than three times as many as there were in 2006, according to Alfi chairman Marc Saluzzi.
Saluzzi said that the REIF sector in Luxembourg has more than trebled in size since since 2006, producing a compound annual growth rate of 23%.
This, he added, showed the global appetite for Luxembourg REIFs, and also that Luxembourg “remains a favoured location to establish and maintain multi-national and multi-sectoral regulated real estate investment funds”.
As for the Alternative Investment Fund Mangers Directive, which was the No. 1 topic of conversation at the Alfi conference, as it took effect earlier this year and fund managers are gearing up to adapt to it,
Saluzzi said it will "clearly impact" the Luxembourg REIF industry.
However, the AIFMD will apply to anyone seeking to market funds in Europe, and Saluzzi said that at Alfi, "we believe that, under [AIFMD], Luxembourg will continue to appeal to the global REIF industry as a domicile, which combines investor protection with well-established industry practices at a reasonable cost.”
Other findings contained in the Alfi survey:
- All the new REIF launches in Luxembourg last year were initiated by initiators in Europe, with German, Swiss and the UK initiators being the most active and, in contrast to the results of the previous year, there were no REIFs initiated by the Americas
- 59% of the surveyed REIFs invest in a variety of sectors (“multi-sector strategy”), with a preference shown for industrial properties (8% of the total) and retail properties (12%) in 2012
- A single-country investment focus represents only 35% of the geographic investment strategies, though this is up from 25% found in last year's ALFI REIF survey. This result, Alfi noted, “underlines the suitability of Luxembourg investment vehicles for multi-national investments”
- Of those Luxembourg REIFs with a single-country focus, 177 of the direct REIFs surveyed invest in Europe, whereas only three funds invest in the Americas only, and just eight invest exclusively in the Asia/Pacific region.
- Similar to the findings of the Alfi 2012 REIF survey, average fund sizes continue to decrease, with the most common net asset value range between €100m and €200m, and with the most common gross asset value range between €400m and €800m
- Funds are becoming smaller, which Alfi noted reflects the more cautious capital raising forecasts of 2013 and preceding years
- In line with the alfi 2012 REIF survey, there has been a further decline both in the ability to raise debt and target gearing
- Investors in Luxembourg's REIFs are predominantly European, but a significant number also come from the Americas, Asia and the Middle East
- Direct REIFs are widely distributed (but with a focus on specific geographical areas), with only 36% limited to a single country, and just 5% being sold in more than six countries