Attempting to answer a very open-ended question....
What is the best method for pricing open-ended real estate funds?
While this may not have been the subject of every dinner party conversation last weekend, it has been a keen ongoing discussion and debate, within both the investment management community and amongst investors. Accordingly, the Association of Real Estate Funds (AREF) have partnered with INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, to initiate a focus group of real estate investment managers and advisors to fully discuss and analyse the issues involved.
Differing dilution levies, single pricing, dual pricing and different approaches to deal with and/or reflect the various market practices and jurisdictions around the world, while all valid, can nevertheless be confusing from an investor’s point of view. The aim of this joint enterprise is to promote a deeper understanding of these approaches and hence greater investor confidence in such open-ended products.
The initial output from this focus group is the Open End Fund Pricing Study, published alongside this overview. This jointly commissioned paper studies the pros and cons of the different pricing methods and includes financial modelling by Michael Hornsby and Robert White at EY Partners, analysing the effects of each approach. Furthermore, it attempts to test a hybrid of the positives from each method.
This study is offered as a consultation paper across Europe to investors, investment managers and their advisers. It was presented at a breakfast seminar on 30th November in Munich and on the 12th December in the UK (read Event Summary here), both roundtable events, allowing open discussion and feedback gathering for the focus group.
”For AREF, with a very broad range of fund structures and target investors, the importance of this project is twofold. Partly to demonstrate to investors the validity of different approaches in different circumstances and in different jurisdictions but also to encourage greater transparency and consistency by managers.” John Cartwright, Chief Executive, AREF.