Growth continues for Luxembourg domiciled REIFs – ALFI
The Association of the Luxembourg Fund Industry (ALFI) has released the 2013 version of its annual real estate investment fund (REIF) survey, showing the development of the Luxembourg-domiciled REIF market as at the end of 2012.
According to the survey, 2012 continued to be a strong year for Luxembourg domiciled REIFs. 22 new direct REIFs were launched, slightly down compared with 26 launches in 2011, bringing the total of Direct REIFs surveyed to 215 funds.
Marc Saluzzi, chairman of ALFI, observed: “The sector has grown 241% since 2006, a compound annual growth rate of 23%. The continued growth in the number of REIFs in Luxembourg demonstrates that Luxembourg remains a favoured location to establish and maintain multi-national and multi-sectoral regulated real estate investment funds which continue to appeal to institutional investors and fund managers around the world.”
Key findings of the survey include:
• All new REIF launches 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 for ‘industrial’ at 8% and for ‘retail’ at 12% in 2012. The survey illustrates a stabilisation in the ‘multi-sector’ strategy, those funds investing in one single sector have slightly changed their focus compared to the previous year.
• A single country investment focus represents only 35% of the geographic investment strategies, though this is up from 25% compared with the ALFI 2012 REIF survey. This underlines the suitability of Luxembourg investment vehicles for multi-national investments. 177 of the direct REIFs surveyed invest in Europe, whereas only three funds invest in the Americas only and eight in the Asia/Pacific region.
• Although umbrella fund structures remain popular for practical and cost considerations, the trend over the last few years has been towards a simplification of structures and strategies; as indicated by 69% of the funds surveyed that have a single compartment structure. This is true for approximately half (51%) of the core funds, which represent 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.
• In total 68% of funds are closed-ended, reflecting the inherent illiquidity of real estate as an asset class and the difficulties of achieving investor liquidity on demand.
• 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 EUR 100 – 200 million and with the most common gross asset value range between EUR 400 – 800 million. Funds are becoming smaller, which 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 are predominantly European, but a significant number also come from the Americas, Asia and the Middle East, which confirms the global appeal of the Luxembourg real estate investment vehicles, especially those set up under the specialised investment fund (SIF) regime. Direct REIFs are widely distributed (but with a focus on specific geographical areas), with only 36% limited to a single country, and a mere 5% being sold in more than six countries.
• Luxembourg domiciled direct REIFs and funds of REIFs are mainly used for small groups of institutional investors, with 81% having less than 25 investors. Only 3% reported having more than 100 investors.
Saluzzi concluded: “The introduction of the AIFMD will clearly impact REIFs and we believe that, under the the new regulatory framework, 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.”