Luxembourg Real Estate Investment Funds 2017 · nual ALFI REIF survey. This document has been...
Transcript of Luxembourg Real Estate Investment Funds 2017 · nual ALFI REIF survey. This document has been...
alfi survey
Luxembourg Real EstateInvestment Funds 2017
3
Executive summary 4
Introduction 6
I. CSSF data on Real Estate Investment Funds in Luxembourg 6
II. Survey coverage 7
III. Luxembourg Direct REIFs - the framework 7
III.I Regulatory framework: regulated vs unregulated structures 7
III.II Legal structures 8
IV. Scope and methodology 9
IV.I Scope 9
IV.II Methodology 9
Direct funds (REIFs) 10
1. Introduction 10
2. Initiator / AIFM origins 10
3. Legal structure and regime 11
4. Fund structure 14
5. Investment style 14
6. Liquidity 15
7. Term 15
8. Geographical focus of fund investments 16
9. Target sectors 16
10. Net Asset Value (NAV) distribution 17
11. Gross Asset Value (GAV) distribution 17
12. Target gearing of funds 17
13.1. Management fees 18
13.2. Performance fees 18
14. Direct REIF investors 19
15. Investor origins 20
16. Private placement 20
17. Accounting standards 21
18. Consolidated accounts 23
19. INREV NAV 23
20. Frequency of NAV calculation 23
21. Property valuation frequency and standards 24
22. Listing 25
23. Currency 25
24. Service providers 26
Glossary 27
table of contents
4
executive summary
The Association of the Luxembourg Fund Indus-try (ALFI) has published the 2017 Real Estate Investment Funds (REIFs) survey, its 11th edition.
Year 2016 and the first two quarters of 2017 pro-vided another good year for Luxembourg domi-ciled REIFs, as the population of REIFs continued to expand by 43 Direct Funds of which 16 are
manager-regulated AIFs1, and 15 reserved alter-native investment funds (RAIFs) dedicated to real estate. This brought the total number of REIFs surveyed to 259 vehicles, including 10 SICARs.
Real estate fund of funds, debt funds and securi-tisations were not taken into consideration in the survey.
Highlights Trends in direct REIFs
The SCS/SCSp represent most of the surveyed funds with 30.5%, under the form of a SICAV (38 funds), combined with the SIF regime or directly set up as manager regulated AIFs (16 funds).
For the first time the RAIF regime is firmly repre-sented with 15 funds in this survey. In compari-son, only one RAIF was reported in the previous survey in mid-2016. The year 2017 marks the first anniversary of the introduction of the RAIF regime.
Similar to the ALFI survey findings in 2015 and 2016 the trend as regards the legal form of Fonds Commun de Placement has continued to reverse compared to findings from earlier surveys since SICAVs now account for 47.5% of the surveyed funds. All in all, 76% of the total Direct Funds fall within the SIF regime, a slight decrease as com-pared with last year’s results.
In 2016, new fund launches were triggered overwhelmingly by initiators/AIFMs from Europe, (mainly Benelux, Germany and UK) and from the USA.
Investment strategies
The most common target sector still remains the ‘multi-sector’ strategy accounting for 40% (com-pared with 53% in the 2016 ALFI survey), nev-ertheless a decrease of the strategy compared with 2016 figures. Among the strategies, “retail” and “residential” compared equally this year with 16% and 15% respectively. “Office” investments represent 10% of the funds surveyed.
79% of the surveyed Direct Funds invest in Eu-rope, whereas 6% of funds invest globally and 5% in the Asia Pacific region.
Fund structures
Though umbrella funds remain popular due to various practical and cost considerations, the trend over the last few years has been towards simplification of structures and strategies, a trend that is again evidenced in this survey.
76% of the Direct Funds have a single compart-ment structure, compared with 68% in 2015 and 73% reported in the 2016 ALFI survey. 68% of the funds surveyed are closed-ended.
The SIF regime can be said to be firmly estab-lished as the favored legal regime for regulated REIFs in Luxembourg. The legal forms of the SCS & SCSp continue to increase in popularity since their introduction in the Luxembourg law in 2013.
Finally, we point out that 15 RAIFs have been reported in the ALFI survey in 2017, compared with only one RAIF in 2016.
Fund sizes and gearing
In line with the survey findings of previous years, smaller funds continue to make up the majority of direct REIFs, with 59% falling in the category of below EUR 100 million NAV. Overall 78 funds re-port a target NAV of “less than EUR 100 million”.
Fees
This year’s ALFI REIF survey confirms that the most commonly used basis for management fee calculations has been the NAV, with a share of 33%, compared to “other” criteria which stood at 30%.
38% of the REIFs charge a management fee be-tween 0% - 0.5%.
1 A “Manager-Regulated AIF” refers to an investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The managers of such a vehicle are typically themselves regulated or registered directly under the AIFMD.
5
Investors
81% of the investors come from Europe, the remaining share comes from the Americas and Asia/Pacific. 6% are highly diversified, which con-firms the global appeal of the Luxembourg fund regimes.
Luxembourg domiciled funds are mainly used for small groups of institutional investors, with 83% having less or 25 investors.
Similar to the findings of previous surveys, only 2% of the surveyed REIFs reported having more than 100 investors. Direct Funds are widely distributed (nevertheless with focus on specific geographical areas): a significant portion of the funds (45%) are distributed in one single country, and 7% are sold in more than six countries. 47% of the funds fall in the category of 2-5 countries.
These numbers clearly show the attractiveness of Luxembourg REIFs to a global investor base. They also underline Luxembourg’s strength as a cross border distribution hub.
Fund reporting
Comparable to last year’s results, 44% of the Funds report under IFRS.
57% of the Direct Funds report a quarterly NAV. Due to the fact that 68% of Direct Funds are closed-ended, the reporting of a monthly NAV (for 9%) is mainly due to investors’ demand for performance measurement rather than unit redemption. 54% of the funds surveyed report consolidated accounts.
70% of the Direct Funds value their property on an annual basis, with 3% requiring monthly valu-ations, a slight increase compared to the results of the previous year. Almost all of the funds use an independent appraiser, with RICS (77%) being the preferred standard.
This latest edition of the ALFI REIF survey confirms that Luxembourg remains the favored location to establish and maintain multi-national and multi-sectoral regulated REIFs, which con-tinue to appeal to institutional investors and fund managers from around the world.
6
introduction
This edition marks the 11th anniversary of the an-nual ALFI REIF survey. This document has been compiled by ALFI head office with the help of the ALFI REIF Survey Working Group.
The ALFI survey was conducted during the third quarter of 2017 and reflects the market composi-
tion as at the end of June 2017.
The main objective of producing this survey is to gain an understanding of market trends rather than claiming to provide complete and compre-hensive data, though a significant proportion of the Luxembourg REIF market has been captured.
I. CSSF data on Real Estate Investment Funds in Luxembourg
Number of Luxembourg real estate fund units*
(*) Number of single funds plus number of sub-funds of umbrella structures
Net assets under management in Luxembourg real estate funds
11 7 7 78
12 19 21 16 15 13 27 26 27 23 20 19 19 21 21
5 3 5 6
14
29
45
83
121135
166
183
218
252
280296
315 312 312 316
0
50
100
150
200
250
300
350
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3
2017
Institutional Funds / SIF (Law of 13 February 2007) Part II (2010 Law)
3,23
5
469 1,92
7
2,34
3
2,28
0
3,73
0
4,70
5
7,31
5
6,18
0
4,12
6
3,84
6
3,13
9
1,84
3
1,73
2
1,16
7
951
993
1,17
1
1,31
2
1,46
9
280146
369 522 8501557
3307
8131
14,7
46
14,8
39
17,5
80
20,9
25
24,0
82 28,7
43 32,6
85
41,8
01
49,5
97
51,5
25
52,7
75 55,6
28
0
10,000
20,000
30,000
40,000
50,000
60,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3
2017
Institutional Funds / SIF (Law of 13 February 2007) Part II (2010 Law)
Source: CSSF
Source: CSSF
7
II. Surveycoverage
As shown below, the ALFI REIF survey provides a good overview of the market compared to the CSSF data. CSSF data shows that 337 REIFs were in existence as at September 2017 – which counts funds under the SIF Law of 2007, as amended; funds under the UCI Part II Law of
2010; and Funds of REIFs. While the ALFI survey managed to capture 259 Direct REIFs (SIF, Part II, but excluding Funds of REIFs). In addition, the ALFI survey includes 16 manager regulated AIFs, 15 RAIFs and 10 SICARs.
Number of fund units surveyed compared with total fund units as per CSSF
0
50
100
150
200
250
300
350
2005 2006 2007 2008 2009 2010 2011 2012/Jun 2013
2013/Jun 2014
2014/Jun 2015
2015/Sep 2016
2016/Jun 2017
Manager Regulated AIFs RAIFs
SICARs (Direct) SIFs & Part II (excluding Fund of REIFs as of 2016)
CSSF REIFs & Fund of REIFs (excluding SICARs)
III. Luxembourg Direct REIFs - the framework
Throughout this survey, real estate funds are referred to as “Direct Funds” or “Direct REIFs”. Direct Funds / Direct REIFs shall mean regulated fund vehicles, manager regulated AIFs, RAIFs and SICARs, which invest in real estate assets either directly or via intermediary entities (special purpose vehicles - SPVs).
Indirect real estate funds that invest in listed real estate related securities as portfolio investments are outside the scope of this survey and thereby not captured.
The survey does also not cover real estate fund of funds.
III.I Regulatory Framework: Regulated vs.Unregulated structures
Regulated structures, for the purposes of this survey, are those fund vehicles that are autho-rised and supervised by the Commission de Sur-veillance du Secteur Financier (the CSSF). The laws and regulations applicable to Luxembourg
regulated funds are comprised of laws, circulars issued by the CSSF and also certain Grand-Du-cal regulations.
The primary laws applicable to regulated funds are
• the law of 17 December 2010 relating to un-dertakings for collective investment (UCIs), as amended (the 2010 Law); and
• the law of 13 February 2007 on specialised investment funds, as amended (the SIF Law).
Funds that are subject to the 2010 Law can in principle be sold to any type of investor, i.e. insti-tutional, high net worth and retail investors.
The 2010 Law “Part II” funds must comply with each relevant EU member state’s local distribu-tion rules and are required to comply with certain investment restrictions [much less stringent than those investment restrictions applicable to UCITS (Part I funds)].
Funds subject to the SIF Law may only be sold to
Source: ALFI REIF survey 2017
8
so-called “well-informed investors”. In addition to the usual market of institutional and professional investors, this opens SIFs to high -worth-individu-als who meet the requirements laid out in the SIF Law. SIFs are not subject to general investment restrictions but must ensure adequate risk diver-sification and disclosure. Exceptions are subject to the review by the CSSF on a case-by-case basis.
Another Luxembourg vehicle is the SICAR, which is not classified as a fund. The “Société d’Inves-tissement en Capital à Risque” is governed by the law of 15 June 2004, as amended. It is an investment vehicle tailored to qualified investors investing in venture capital and private equity. The SICAR can take various legal forms (such as the S.C.S., S.A., S.à r.l., S.C.A. or other legal structures) and, while regulated, is not subject to diversification requirements.
Unregulated vehicles are typically set up as companies or partnerships under the law of 10 August 1915 on commercial companies, as amended. They often take the form of private limited companies (S.à r.l.), partnerships limited by shares (S.C.A.) or limited partnerships with/ without legal personality (SCS / SCSp). When companies have as their main purpose the holding and financing of participations in other companies (which in their turn may own real estate), such companies are often referred to as “SOPARFIs”.
SOPARFIs and limited partnerships do not enjoy a special legal or tax regime, but like any other fully taxable Luxembourg company, SOPARFIs benefit from the participation exemption regime on qualifying participations.
While unregulated vehicles operate in a manner similar to regulated funds, unregulated vehicles offer greater flexibility, for example in terms of choice of service providers, and lower set-up and operating costs (as opposed to investment vehicles subject to regulatory oversight and restrictions). Regulated vehicles benefit, among other things, from a favorable tax status and a high level investor protection.
Unregulated vehicles tend to have a small group of investors and a simple capital structure. Not-withstanding the foregoing, unregulated vehicles may have a higher total size than regulated funds with more investors.
This survey takes into account Direct Funds, which are regulated by the “product” laws in Lux-
embourg (i.e. 2010 Law/SIF Law /SICAR Law). Additionally, this survey includes real estate investment structures which are not regulated by the “product” laws but which may, nevertheless, be “Alternative Investment Funds” as defined by the Directive 2011/61/EU on alternative invest-ment fund managers (AIFMD) and the law of 12 July 2013 on alternative investment fund manag-ers and which are referred to herein as “Manager- Regulated AIFs”. For the second time, this survey includes the Reserved Alternative Investment Funds (RAIFs).
The RAIF vehicle combines the characteristics and structuring flexibilities of Luxembourg reg-ulated specialised investment funds (SIFs) and investment companies in risk capital (SICARs) qualifying as AIFs managed by an authorised AIFM, except that RAIFs are not subject to CSSF approval before they are launched. The RAIF was introduced by the Luxembourg Law of 23 July 2016 (RAIF Law). The RAIF regime is optional.
The constitutive documents must expressly pro-vide that the investment vehicle is subject to the provisions of the RAIF Law.
The RAIF structure allows real estate fund initiators to set up Luxembourg-domiciled funds that are not subject to regulatory approval by the Luxembourg supervisory authority, the CSSF. This option permits a significantly enhanced time-to-market for new fund launches.
III.II Legal structures
Real Estate Funds governed by the 2010 Law, the SIF law or the RAIF law may be set up either in corporate form (e.g. “SICAV-SCA” or “SI-CAF-SA”), in contractual form (“FCP”) or as a limited partnership (“SCS” or “SCSp”). A key determining factor in the selection of one of these structures is the tax regime applicable to investors: FCPs and limited partnerships are tax transparent, whereas SOPARFIs, SICAVs and SICAFs are opaque for tax purposes.
Regulated funds governed by the 2010 Law or the SIF Law as well as the SICAR Law and the RAIF Law may adopt an umbrella structure with multiple sub-funds where, for instance, sub-funds have different investment policies or are restrict-ed to certain types of investors. The umbrella fund is legally treated as a single entity. However, in principle, each sub-fund is responsible for its
9
IV. Scope and methodology
IV.I Scope
The ALFI 2017 REIF survey covers Direct REIFs under Part II Law, SIF Law, Manager Regulated AIFs, RAIFs and Real Estate SICARs.
It does not cover the intermediary financing vehicles set up for the acquisition of property or similar collective investment vehicles.
IV.II Methodology
The ALFI survey is based on a comprehensive questionnaire.
The questionnaire, which focused on the status as at June 2017, included questions relating to each fund’s:
• Legal structure and regime
• Investment style
• Geographical investment region
• Target segment of investment
• Net Asset Value (NAV), Gross Asset Value (GAV) and target gearing
• Distribution method
• Fees
• Investor types and origin
• Accounting standard (GAAP)
• Consolidated Accounts
• INREV NAV
• Valuation methodology
• Service Providers
Where possible, survey results are compared with previous ALFI survey results (ALFI REIF surveys 2007 to 2016).
own assets and liabilities. For the purpose of this survey, reference to the number of “fund units”
means the number of single funds plus the num-ber of active sub-funds in umbrella structures.
10
direct funds (REIFs)
1. Introduction 43 new funds were launched as from December 2016 and 3 new funds were reported as at June
2017, bringing the Direct Fund population sur-veyed to 259.
Number of fund units launched
2 0 1 1 4
7
18
9
18
9
15
25
16
25
29
33
43
30
5
10
15
20
25
30
35
40
45
2000or
before
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 June2017
2. Initiator / AIFM origins
Over the years, initiators from Europe were re-sponsible for the majority of the new REIF launch-es. This year, due to their AIFM location, Benelux countries represent 27% of the initiators, followed
by Germany and the UK. Initiators from the US represent 8.5% of total fund launches. 68% of the initiators are AIFM compliant, which represent a 10% raise compared to last year’s survey.
Proportion of Direct REIFs launched byinitiator/AIFM origins
AIFM compliant
EU64%
Europe (non-EU)20%
North America14%
Asia / Pacific2%
Yes 68%
No 32%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017 Source: ALFI REIF survey 2017
11
Proportion of Direct REIFs launched by initiator/AIFM origins
3. Legal structure and regime
The majority of Direct Funds (76%) fall under the SIF law. This reflects the continued popularity of the SIF regime for real estate fund initiators
seeking an onshore regulated investment fund ve-hicle for all types of alternative investment fund products. This year’s survey includes 15 RAIFs.
SIF (2007 law)76% Part II (2010 law) 8%
SICAR 4%
Manager Regulated AIF 6.2%
RAIF 5.8%
Legal regime
74 of the 259 Direct Funds use the FCP (not applicable for SICARs and Manager-Regulated AIFs)as the vehicle type, usually in combination with the SIF regime.
The increased popularity of the SICAV-SCA, the SICAV-SA and the SICAV SCS/SCSp combina-tions reflects the versatility of the Luxembourg
regulatory environment in offering both trans-parent and opaque vehicles and in supporting regulatory regimes suitable to initiators’ and investors’ requirements. It may also be indicative of an increased use of Manager-Regulated AIFs, specifically in limited partnership form (at the expense of the FCP).
2
71
15
11
51
5
1
9
5
12
1
22 22
4
28
0
10
20
30
40
50
60
70
80
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
12
FCP 28.6%
SICAV (SCA)17.4%
SICAV (SA)15.4%
SICAV (SCS/SCSp); 14,6%
SICAR (SCA) 0.4%
SICAR (SA) 1.5%
SICAR (Sarl) 1.2%
SCA 1.2%
SA 1.2%
SICAF 2.3%SCS/SCSp 15.8%
Sàrl 0.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
The most recent development in legal structuring has been the updating of the limited partnership laws in Luxembourg (the SCS and SCSp) with
79 funds reported (30.5% ).47.4% of Direct Funds are under a SICAV form.
Basic structure
FCP28.6%
SCA19%
SA18.1%
SICAF2.3%
SCS/SCSp30.5%
Sàrl1.5%
FCP28.6%
SICAV47,4%
SCA1.2%
SA1.2% SICAF
2.3%SICAR3.1%
Sàrl0.4%
SCS/SCSp15.8%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017 Source: ALFI REIF survey 2017
Source: CSSF
13
CSSF Data as at 30 June 2017 excluding SICARs(in terms of fund units)
Legal regime and basic structure combined
Basic structure
Legal regime
Part II (law 2010) / SICAF0.9%
Part II (law 2010) / FCP4.8%
Part II (law 2010) / SICAV0.6%
SIF (law 2007) / FCP27.0%
SIF (law 2007) / SICAV61.6%
SIF (law 2007) / SICAF5.1%
Part II (law 2010)6%
SIF (law 2007)94%
SICAF6%
FCP32%
SICAV62%
Source: CSSF
Source: CSSF
14
76% of the surveyed Direct Funds are single compartment vehicles. The remaining funds have a multi-compartment umbrella structure (i.e. sub- funds). 14% use the umbrella structure solely for separate investment strategies (same as last year’s ALFI REIF survey), 3% use an umbrel-la solely for co-investment, and 13% combine both types of usage. 8% of the funds use feeder
vehicles and 12% have complex share classes, allowing, for example, different management and performance fee structures to be managed for different investors. 25 of the surveyed funds use a pooling structure. The overall trend over the last several years has been towards simplification of structures and strategies, which was confirmed by this year’s results.
4. Fund structure
3%
14%
13%
76%
12%
8%
10%
97%
86%
87%
24%
88%
92%
90%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Sub funds used for co-investmentonly
Sub funds used for separateinvestment strategies only
Sub funds used for co-investment& separate investment strategies
Single compartment funds
Complex share classes
Feeder Vehicles
Pooling
Yes No
5. Investment style
59% of the Direct Funds surveyed (excluding SICARs) are “Core” funds, with the remainder split between “Value-Added” (27%) and “Oppor-tunistic” (14%) fund styles. In terms of regulatory regimes, all SICARs must be “Opportunistic”
funds. Part II (2010 Law) funds predominantly pursue a “Core” strategy, while the SIF regime is flexible (encompassing “Core”, “Value-Added” and Opportunity strategies).
Core 59%
Value-Added27%
Opportunistic14%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
15
6. Liquidity 68% of the surveyed funds are closed-ended, which supports a trend noticed over the last sev-eral years. 5% of the funds are semi open-ended, with 11% being fully open-ended with no restric-tions on redemptions. 16% of the funds are open with restrictions.
This reflects the inherent illiquidity of real es-tate as an asset class and thus the difficulties of providing investors liquidity upon demand. It also illustrates that investors are allocating capital to funds that offer some sort of liquidity.
7. Term 40% of all Direct Funds have a term duration of 8-10 years or 11-15 years, while less than half of the funds (49%) are represented in “infinite life” term.
Only 11% of the funds have a duration of up to 7 years, which reflects the longer timeframe usually required by real estate funds to fully implement their strategies.
up to 7 years11%
8-10 years27%
11-15 years13%
Infinite 49%
Closed68%
Open - No restrictions11%
Open - restrictions16%
Semi-open (not continuous)5%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
16
8. Geographical focus of fund investments
73% of the funds invest in the EU-28. 17 funds invest only in the North Americas – with only 6 in last year’s ALFI survey – and 13 funds in the Asia / Pacific region. 15 funds invest globally, reflecting the suitability of Luxembourg REIFs
for investment strategies focusing on a range of different countries.
Luxembourg REIFs are used for investment in all major regions of the world.
EU-28 + EFTA Only1.2%
EU28 + other Europe Only 3.9%
North America 6.6%
EU-28; 73.3%
Central/South America2.3%
Global 5.8%
Middle East & Africa1.2%
Asia/Pacific 5.0%
EFTA (non-EU) 0,7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1
9. Target sectors 40% of the funds surveyed represent multi-sector investments. This indicates that a larger pro-portion of the surveyed funds have a diversified
investment strategy in terms of property types. Last year’s results showed 50%.
Office Predominantly10%
Retail Predominantly16%
Industrial Predominantly2%
Residential Predominantly15%
Hospitality Predominantly6%
Multi Sector 40%
Other Single Specialist 6%
All Sectors5%
Luxembourg REIF investment regions
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
17
10. Net Asset Value (NAV) distribution
Net Asset Value(NAV in EUR million)
153
44 35
15 4
2
5
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+
Target NAV(NAV in EUR million)
11. Gross Asset Value (GAV) distribution
Gross Asset Value(GAV in EUR million)
Target GAV(GAV in EUR million)
51.6%
15.1%
17%
10.1%2.7%
0.8%
2.7%
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+51.6%
15.1%
17%
10.1%2.7%
0.8%
2.7%
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+
35.5%22.7%
20.9%
12.3%
3.2%
1.4%
4%
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+
12. Targetgearing of funds
Target gearing of funds
28%7%
19%
22%8%
16%
Less than 20%
20%-30%
40%-50%
50%-60%
60%-70%
70%+
59.3%
17% 13.6%
5.8% 1.6%
0.8%
1.9%
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+
26.7%
14.7%
26.7%
19.4%
3.7%
4.6%
4.1%
< 100
100-200
200-400
400-800
800-1200
1200-1800
1800+
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
18
13.1. Manage-ment fees
33% of the surveyed Direct Funds use NAV as the basis for their management fee calculation.
The majority of the funds that charge fees (38%)
charge in the 0%-0.5% range, followed by the 0.51%-1% range (24%).
Management fee calculation basis for Direct REIFs
Management fee range distribution for Direct REIFs
NAV33%
GAV18% Other
30%
Commitments15%
Nil4%
0%-0.5%40%
0.51%-1%25% 1.01%-1.5%
21%
> 1.5%14%
More than half of the surveyed Direct Funds do not levy a performance fee. For the funds
charging performance fees, 46% charge a fee of 20%.
13.2. Perfor-mance fees
Yes48%
No52%
Performance fee charged Performance fee (%) charged (as per PPM)
0-4%2%
5%-8%43%
9%-12%21%
13%-20%5%
Specified Benchmark
29%
Performance fee hurdle rate
= 20%46%
< 20%37%
> 20%17%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
19
14. Direct REIFinvestors
Comparable to previous surveys, the 2017 survey results show that Direct Funds typically do not have a large number of investors. 83% of the Direct Funds have less or 25 investors and 55% have five (5) investors or less, while only 2% have more than 100 investors.
This reflects the fact that the majority of inves-
tors in such funds are institutional and thus, inherently, there tends to be a smaller number of investors per fund. 15% of funds have more than 25 investors.
This continues the trend toward a larger number of smaller funds, with a smaller number of inves-tors per fund.
Number of investors by Direct REIFs
1-5 investors55%
6-25 investors28%
26-100 investors15%
100+ investors2%
Virtually all of the funds surveyed (86%) have in-stitutional investors, with “high net worth individ-
uals” (HNWI) investing in 9% of the funds. Retail investors are not represented.
Type of investors
86%
68%
4%
12%
1%
4%
9%16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Majority investor types Secondary investor types
HNW Individuals
Family Office
Private Bank
Institutional
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
20
The majority of investors (81%) continue to be European, while 11.6% of the funds have inves-tors from the Americas. 46% of the funds have investors from one (1) country, 47% (compared to
42% last year) of the surveyed funds have inves-tors from two to five countries and 6% only have investors from six to ten countries (comparable to last year’s ALFI survey).
15. Investor origins
Origin of Direct REIF investors
Americas11.6%
Asia / Pacific1%
Europe81%
Highly Diversified6%
Middle East0.4%
Number of investors countries
16. Privateplacement
Number of countries where Luxembourg REIFs are registered for PUBLIC distribution
Private placement
Yes89%
No11%
none80%
1 country11%
2-5 countries4%
6+ countries5%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017 Source: ALFI REIF survey 2017
2-5 countries 47%
1 country 46%
6-10 countries 6%
11+ countries 1%
21
In confirmation of the results of the 2015 and 2016 ALFI surveys, 56% of all surveyed funds ap-ply standard Luxembourg GAAP (Lux GAAP) as
accounting standard, with the remainder applying IFRS.
Fund GAAP
Lux GAAP56%
IFRS44%
IFRS fund units and LUX GAAP fund units adjusting for various items
27%
23%
24%
17%
13%
9%
73%
77%
76%
83%
87%
91%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Formation expenses
Transaction costs
Deferred taxation
Fair valueof financial instruments
Debt at FV or(Y/N)
Other adjustments
YES NO
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
22
33
109 113
58
82
114
0
20
40
60
80
100
120
Lux GAAP - written off Lux GAAP - capitalised / amortised IFRS
Fund units
Formation Expenses Transaction Costs
Trading NAV Adjustments
Accounting treatment of financial instruments
Fair Value81%
Amortised Costs19%
Fully provided for- in line with IFRS6%
Fair Value- similar to INREV15%
Other3%
No76%
Deferred taxation treatment
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
23
The majority (57%) of Direct Funds report a quarterly NAV calculation, while 26% produce an annual NAV. Among all the funds surveyed, 24
report a monthly NAV and 22 funds a semi-annu-al NAV.
18. Consolidtated accounts
20. Frequency of NAV calculation
19. INREV NAV
Yes54%
No46%
Yes20%
No80%
Semi-Annual8%
Quarterly57% Monthly
9%
Annual26%
Since 68% of the funds are closed-ended, the reporting of quarterly NAV is more likely due to investor demand for performance measurement
rather than for the purposes of pricing the issue and redemption of units.
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
24
Fund level valuation (*)
Yes - Fully delegated to an external valuer
60%
No - Performed in house by the AIFM
38%
No - Performed by a seperate in-house function
2%
(*) Graph refers to 80% of the Direct Fund population surveyed.
Almost all (93%) of the surveyed funds use an independent appraiser in respect of their property valuations.
21. Propertyvaluationfrequency and standards
Frequency of property valuation
Semi-Annual9%
Quarterly14%
Monthly3%
Annual70%
Other 1%
None3%
77% of the Direct Funds’ valuations are carried out under RICS valuation and appraisal stan-
dards. This is by far the leading standard for property valuations used over years.
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
25
Valuation standards adopted
RICS77%
TEGOVA1%
ISVC1%
Other10%
None11%
22. Listing Out of the 259 Direct Funds covered in this survey, only 5 (2%) are listed on the Luxembourg
Stock Exchange (Lux MTF). One fund reports several listings.
23. Currency The great majority of funds (82%) report in EUR, while 12% report in USD and 4% in GBP, both
slightly up from recent results.
2% 2% 0.4%
98% 98% 99.6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Listed Yes / No Listed in Luxembourg Several Listings
Yes No
EUR82%
USD12%
GBP4%
Other2%
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
26
24. Service providers
50%
27%
50%
73%
0% 20% 40% 60% 80% 100%
Portfolio Management Delegated
Risk Management Delegated
Yes No
Source: ALFI REIF survey 2017
Source: ALFI REIF survey 2017
Credit institution (bank) 40%
Not a credit institution (bank)60%
Same firm as Administrator55%
Different Depositary 45%
Third Party Provider 62%
Self Domiciled 38%
0% 10% 20% 30% 40% 50% 60% 70%
Domicilation and corporate
Central administrator
Depositary
27
glossary
2010 Law
2007 Law
AIFMD
CSSF
Direct Fund
EFTA
EU 28
ELTIF
FCP
GAAP
GAV
HNW
HNWI
Indirect Fund
IFRS
Initiator / AIFM
INREV
Investment style
ISVC
The law of 17 December 2010 on undertakings for collective investment as may be amended from time to time (UCIs)
The law of 13 February 2007 on specialized invesment funds as amended (SIFs)
Alternative Investment Fund Managers Directive, Directive 2011/61/EU of the EP and of the Council of 8 June 2011
Commission de Surveillance du Secteur Financier (Luxembourg supervisory authority for the financial sector)
Fund investing in property assets or structures holding property assets
European Free Trade Association (Iceland, Liechtenstein, Nor-way, Switzerland)
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Nether-lands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom
European Long-Term Investment Fund, a pan-European regime for Alternative Investment Funds (AIFs) which channel the cap-ital they raise towards European long-term investments in the real economy, in line with the European Union (EU) objective of smart, sustainable and inclusive growth
Fonds Commun de Placement: Common fund, entity without legal personality based on contractual agreement
Generally Accepted Accounting Principles
Gross Asset Value
High Net Worth
High Net Worth Individual
Fund investing in real estate securities or other real estate funds
International Financial Reporting Standards
Initiator origin region : Europe, Asia/Pacific/ME, Americas
European Association for Investors in Non-listed Real Estate Vehicles
Core : Stable income returns, stabilised properties located in strong and low risk markets; geared at less than 50%
Value Added : combination of income and capital return; stabi-lised properties located in low to medium risk markets, as well as an element in development or opportunistic investments; geared from 40% to 70%
Opportunistic : primarily through capital return; higher risk properties (e.g development projects, property repositioning, assets in higher risk countries or distressed assets); geared is in excess of 60%
International Standards Valuation Committee
28
Liquidity
LuxSE
ManagerRegulated AIF
NAV
REIF
RICS
SA
SCA
SCS
SCSp
SICAF
SICAR
SICAV
SIF
RAIF
SOPARFI
SPV
TEGOVA
UCI
Closed-ended : Fund may not, at the request of investors, repurchase directly or indirectly their units or shares
Open-ended : Fund may, at the request of investors, repur-chase directly or indirectly their units or shares
Open-ended with restriction : in addition subject to further conditions such as maximum number of units to be redeemed in a period; extended notice period; early redemption penalties etc.
Semi-open ended : series of distinct equity offerings after the initial launch, but not on a continuous basis; ability of investors to redeem capital at certain times during the fund life; infinite life.
Luxembourg Stock Exchange
Investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The managers of such a vehicle are typically themselves regulated or registered direct-ly under the AIFMD.
Net Asset Value
Real Estate Investment Fund
The Royal Institution of Chartered Surveyors
Sociéte anonyme (public limited company)
Société en commandite par actions (partnership limited by shares)
Société en commandite simple (limited partnership)
Société en commandite spéciale (special limited partnership)
Société d’investissement à capital fixe (investment company with fixed capital)
Société d’Investissement en Capital à Risque (investment com-pany in risk capital)
Société d’investissement à capital variable (investment compa-ny with variable capital)
Fonds d’investissement spécialisé (specialized investment fund)
Reserved Alternative Investment Fund
Société de participations financières (financial holding company)
Special Purpose Vehicle
The European Group of Valuers’ Associations
Undertaking for Collective Investment within the meaning of the 2010 Law
notes
The ALFI Real Estate Funds Sub-Committee conducts this sur-vey on an annual basis in the most comprehensive form possi-ble.
The ALFI Real Estate Funds Sub-Committee would like to thank all those involved in compiling the data and commentaries for the ALFI REIF survey 2017.
alfi - association of the luxemborg fund industry
B.P. 206L-2012 Luxembourg
Tel: +352 22 3026-1Fax: +352 22 30 93
20 November 2017