Raifs - Reserved Alternative Investment Funds - are becoming an increasingly popular way to structure Reifs - Real Estate Investment Funds - with Raifs constituting 31 percent of the funds recently surveyed. The growth comes at the expense of SIFs - Specialised Investment Funds - while the share of Sicavs remains stable.
The 17th edition of the real estate investment fund survey carried out by the Association of the Luxembourg Fund Industry, Alfi, was released this week.
“This edition confirms the resilience of the real estate investment funds that has been observed since the global pandemic,” commented Anne-Sophie Le Bris, a senior manager with consultancy firm Deloitte, when presenting the study during Alfi’s Private Asset Conference.
By far the most popular legal form for the funds is the SCS/SCSp partnership, the choice of 59 percent of the surveyed funds. According to the report, this is either in the form of a Sicav combined with the SIF regime or set up as manager-regulated AIFs or non-regulated vehicles.
Versatility
“This has increased over the years and, together with the regulatory regime, it shows that the Luxembourg regulator and legal framework is quite versatile,” said Le Bris.
The latest survey recorded 215 Raifs and noted this number has steadily increased since the inception of the Raif in 2016, up from 28 percent last year, 26 percent in 2021 and 22 percent in 2020. This compares with 213 SIFs or 30 percent of the funds surveyed. This SIF statistic, in contrast, has been dropping. It used to be 37 percent in 2022 and 40 percent in 2021.
The number of Sicavs increased to 306 in 2023, up from 268 in 2022. The report pointed out that prior to this year, the number of Sicavs was “quite stable.”
Increasing in size
According to CSSF data, the net asset value of Luxembourg real estate funds constituted as SIFs or Part II funds amounts to 131.9 billion euros. This figure has steadily increased year on year since 2000.
More than half of the funds (51 percent) surveyed this year reported following a “multi-sector” investment strategy. This has increased gradually since the 2019 edition reported 33 percent.
For those following single-sector strategies, the share of “residential” at 12 percent remains stable. “Retail” and “Office” investments “continue seeing a slight decrease year on year, dropping to 5 percent from 10 percent in 2020.
Various strategies
The “Industrial” strategy has increased by two percentage points this year, up to 5 percent from 3 percent in 2022. The “all sector” strategy has decreased to 11 percent this year, down from 15 percent in 2021.
The vast majority of the surveyed REIFs (77 percent) invest in Europe (European Union and EFTA countries). The “other Europe/All Europe” category increased notably this year, to 11.5 percent, up from 7 percent in 2021. Funds investing with no specific focus and in Asia/Pacific remain similar to last year – 8 percent and 7 percent, respectively.
The majority of funds have management fees under 1 percent. Management fees for the funds are generally computed under NAV or GAV, but this year’s report showed that the GAV had declined by 13 percent. The NAV, however, remained stable and is seen as the standard way to assess management fees.
Liquidity management
The report looked at how real estate investment funds use liquidity management tools. Some 30 funds reported using such tools, including 16 which said they used redemption in kinds. According to the report, 8 funds deferred redemptions or activated gates.
18 funds reported they had large redemptions – twice as many as in the 2022 survey, amounting to 2.57 percent of funds surveyed. The report noted that 13 funds limited or restricted large redemption requests in line with prospectus powers. Le Bris emphasised that this was “really a minor portion of this population.”
The report also looked for the first time at the funds categorised under the Sustainable Finance Disclosure Regulation. Three-quarters of the funds told the survey they integrate sustainability risk in the fund management. A much lower figure – 22.7 percent – reported having environmental and social objectives.
Interesting to monitor
Only 2.2 percent reported having a sustainable objective. Le Bris commented that it “would be interesting to monitor” this statistic in the coming years “to see if there is an evolution in that regard.”
“The real estate investment fund survey this year is showing again resilience despite the market conditions and also showing that Luxembourg remains a very attractive place for the fund initiators and managers,” said Le Bris.
The survey covered 706 funds up 12 percent from the previous year, and this has doubled since five years ago.
Net assets held in Luxembourg real estate funds:
