Luxembourg sees boost in real estate funds
20 January 2016 Luxembourg
Image: Shutterstock
Luxembourg has seen an increase in domiciled real estate investment funds (REIFs), according to a survey from the Association of the Luxembourg Fund Industry (ALFI) and EY Luxembourg.
The survey focussed on figures as of June 2015, and included a new category of investment vehicle. In addition to the direct real estate funds, funds of REIFs and real estate risk capital investment companies, or société d’investissment en capital à risque (SICARs), the survey also included manager-regulated alternative investment funds.
The total number of REIFs participating increased by around 10 percent compared to the 2014 survey, and since 2006, the number of funds has seen a compound annual growth rate of just over 16 percent.
For the full year 2014, 27 new direct Luxembourg-domiciled funds were launched, including three manager-regulated alternative investment funds (AIFs). This is an improvement on 2013, which saw 18 new direct funds, two of which were manager-regulated AIFs.
In 2014, five funds of REIFs were launched, compared to just two in 2013 and one in 2012.
The numbers also looked promising for the first half of 2015, which saw 12 new funds launched, three of which were manager-regulated AIFs.
The most common target sector cited for funds was ‘multi-sector’, with 61 percent selecting this, compared to 57 percent in the previous survey. Of the other sectors, the most common category selected was retail, which was highlighted by 45 percent of respondents, significantly more than the 27 percent that selected it last year.
The report suggested that there may be an ongoing trend towards simplification in investment strategies, as 40 percent of respondents said their funds focused on a single country. Although this is the same as the figure found in last year’s survey, it is an increase on the previous two years, which saw 27 percent and then 35 percent opting for this strategy.
Of direct funds surveyed, 70 percent invest in Europe only, however within this specific area, they are fairly widely distributed. More than half, 54 percent, of these funds are sold in to two to five countries, while 26 percent are focused on a single country and 20 percent are being sold in to six countries or more.
Of all funds, 8 percent said they invest in the Asia Pacific region only, and 3 percent invest in the Americas only. However, while most investors in to Luxembourg are European, the survey also saw interest from the Americas, Asia and the Middle East.
Luxembourg-domiciled direct funds and funds of REIFs were found to be mostly used by small groups of institutional investors. As many as 87 percent of these funds said they have less than 25 investors, a small increase from the previous figure of 84 percent. In contrast, only 2 percent of REIFs surveyed have more than 100 investors.
The majority of those surveyed were also smaller funds, with 61 percent falling in the category of less than €100 million net asset value.
The survey also showed a pick-up in the adoption of the International Financial Reporting Standards (IFRS) over the Luxembourg Generally Accepted Accounting Principles (GAAP).
Of those funds launched in the first half of 2015, 75 percent reported under IFRS, while the majority of those that launched in 2014, 68 percent, reported under GAAP. However, the percentage of funds borrowing under IFRS has seen a slight decrease from 42 percent in 2014 to 40 percent as of June 2015.
Denise Voss, chair of ALFI, said: “We have now been doing the survey on REIFs since 2006 and over that time the market has changed considerably. Luxembourg’s aim is to create effective solutions for asset managers enabling them to distribute their funds globally and we believe that this latest edition of the survey confirms Luxembourg’s success in achieving that aim.”
Kai Braun, partner and alternatives advisory leader at EY, said: “The survey results clearly underline the positioning of Luxembourg as domicile of choice for real estate investment funds established with the aim to invest internationally and distribute cross-border.”
“Since the introduction of the AIFMD, the trend of setting up international fund vehicles in the Grand Duchy has even increased with non-EU managers using Luxembourg as a European distribution hub.”
The survey focussed on figures as of June 2015, and included a new category of investment vehicle. In addition to the direct real estate funds, funds of REIFs and real estate risk capital investment companies, or société d’investissment en capital à risque (SICARs), the survey also included manager-regulated alternative investment funds.
The total number of REIFs participating increased by around 10 percent compared to the 2014 survey, and since 2006, the number of funds has seen a compound annual growth rate of just over 16 percent.
For the full year 2014, 27 new direct Luxembourg-domiciled funds were launched, including three manager-regulated alternative investment funds (AIFs). This is an improvement on 2013, which saw 18 new direct funds, two of which were manager-regulated AIFs.
In 2014, five funds of REIFs were launched, compared to just two in 2013 and one in 2012.
The numbers also looked promising for the first half of 2015, which saw 12 new funds launched, three of which were manager-regulated AIFs.
The most common target sector cited for funds was ‘multi-sector’, with 61 percent selecting this, compared to 57 percent in the previous survey. Of the other sectors, the most common category selected was retail, which was highlighted by 45 percent of respondents, significantly more than the 27 percent that selected it last year.
The report suggested that there may be an ongoing trend towards simplification in investment strategies, as 40 percent of respondents said their funds focused on a single country. Although this is the same as the figure found in last year’s survey, it is an increase on the previous two years, which saw 27 percent and then 35 percent opting for this strategy.
Of direct funds surveyed, 70 percent invest in Europe only, however within this specific area, they are fairly widely distributed. More than half, 54 percent, of these funds are sold in to two to five countries, while 26 percent are focused on a single country and 20 percent are being sold in to six countries or more.
Of all funds, 8 percent said they invest in the Asia Pacific region only, and 3 percent invest in the Americas only. However, while most investors in to Luxembourg are European, the survey also saw interest from the Americas, Asia and the Middle East.
Luxembourg-domiciled direct funds and funds of REIFs were found to be mostly used by small groups of institutional investors. As many as 87 percent of these funds said they have less than 25 investors, a small increase from the previous figure of 84 percent. In contrast, only 2 percent of REIFs surveyed have more than 100 investors.
The majority of those surveyed were also smaller funds, with 61 percent falling in the category of less than €100 million net asset value.
The survey also showed a pick-up in the adoption of the International Financial Reporting Standards (IFRS) over the Luxembourg Generally Accepted Accounting Principles (GAAP).
Of those funds launched in the first half of 2015, 75 percent reported under IFRS, while the majority of those that launched in 2014, 68 percent, reported under GAAP. However, the percentage of funds borrowing under IFRS has seen a slight decrease from 42 percent in 2014 to 40 percent as of June 2015.
Denise Voss, chair of ALFI, said: “We have now been doing the survey on REIFs since 2006 and over that time the market has changed considerably. Luxembourg’s aim is to create effective solutions for asset managers enabling them to distribute their funds globally and we believe that this latest edition of the survey confirms Luxembourg’s success in achieving that aim.”
Kai Braun, partner and alternatives advisory leader at EY, said: “The survey results clearly underline the positioning of Luxembourg as domicile of choice for real estate investment funds established with the aim to invest internationally and distribute cross-border.”
“Since the introduction of the AIFMD, the trend of setting up international fund vehicles in the Grand Duchy has even increased with non-EU managers using Luxembourg as a European distribution hub.”
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