The Fitch ratings agency released a report this week calling for greater scrutiny of the ability of property fund managers to manage liquidity.
Saying that the credit crisis which started in the US residential real estate market in July 2007 has affected the liquidity of the market for unlisted open-ended real estate funds, the report calls into doubt these vehicles’ reputation as low volatility vehicles that can deliver good returns. The 23-page report urged investors to take a closer look at the risks involved, and called on managers to make liquidity management a central part of their overall risk framework. The ability to stress-test portfolios, the need for transparency and disclosure with investors and the benefit of diversification were all stressed.
The report notes that the countries that had the strongest real estate fund performance in recent years – the UK and the US – were in the end the most affected by the crisis.
According to Fitch’s research, investments in open-ended non-listed funds now amount to more than €300bn in Europe.