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good times are behind property funds cerulli

European real estate funds are unlikely to regain their former popularity with investors, according to Cerulli Associates


The January issue of The Cerulli Edge: European Monthly Product Trends notes that pan-European property portfolios generated positive performance in each of the opening three quarters of 2013, including a return of 1.9% in Q3 – their biggest three-month gain since Q1 2011.

Nevertheless, such funds face an uncertain future in many markets. In Spain, for example, many real estate portfolios are winding-down, with the sector likely to shrink to just three funds.

German funds have also had “a tough time”, the report continues, with many closing their doors to redemptions. “For some that move has been permanent,” Cerulli adds. “That has led to a divergence in performance between the zombies and the survivors – and to investors avoiding both.”

Indeed, German asset management trade body BVI reported a significant fall in flows into property funds, in the second and third quarters of 2013.

Cerulli blames the downturn on reporting rules imposed by the German regulator, as well as a “gold-plating” of the Alternative Investment Fund Manager’s Directive which requires new investors to hold property funds for at least two years, and to give one year’s notice for redemptions.

“A mini-rush preceded implementation, only for sales to be crushed from August onward,” Cerulli concludes. “A return to the good old days seems unlikely.”