INREV steps up campaign for transparency

INREV, the European Association for Investors in Non-Listed Real Estate Vehicles, has launched a new guideline on the disclosure of fee structures for private institutional property funds, which aim to increase transparency and facilitate the comparison of fund structures.

The guide provides for a Total Expense Ration (TER) expressing annual operating costs borne by a fund over one year as a proportion of average fund assets, in order to enable fairer comparisons of costs between funds than the management fee alone. 

The TER should capture both the fund-level expenses included in the TER, as well as other property-specific costs.

In a statement, Neil Turner, head of property investment at Schroder Property Investment Management and chairman of INREV’s fee metrics working group, said: “It would be fair to say that in the past, property investment managers have perhaps not been as transparent in this area as some other asset classes. INREV has been working for two years to achieve the same professional standards for fee metrics as prevail in competing markets for capital such as equities as bonds.”

Markus Koenigstein, head of real estate at Germany’s R+V Insurance-Group and member of the INREV management board, said: “The great achievement of the INREV fee metrics guidelines is that they establish a basis for everyone to use the same methodology for the first time. This is a big step forward in the evolution of the non-listed real estate funds industry.”

The guideline was launched this week in Berlin where INREV held its first investor-only seminar. It was one of two initiatives designed to improve transparency.

The other is the publication of a new calculation methodology for the presentation of net asset value (NAV) in Europe’s €400 billion non-listed real estate funds industry. This should allow investors to compare the performance and valuations of funds for the first time.

“The dramatic increase in capital flows into non-listed funds is driving the demand for standardisation at a whole range of levels from major institutional investors such as ourselves,” said Matthias Stürmer, Head of real estate management at Germany’s E.ON Energie and a member of INREV’s management board.

“We have a €2 billion mixed real estate portfolio with about 50 target funds worldwide. In order to reduce costs, benchmark property funds and compare their performance with other asset classes, we have to know how fund’s NAV are calculated and to guarantee eitherthat all NAVs have the same basis or the differences are transparent, so it’s clear what we’re paying for,” Stürmer added.

INREV said it would not try to dictate to managers how they should calculate the value of their assets, but is asking them to show in their reports how their NAVs differ from the association’s reference, which will then allow investors to easily work back to the market benchmark.

One of the key elements is that acquisition costs, such as transfer taxes, lawyers, agents and accountant fees should be amortised over five years, to create a consistent smoothing of the numbers. 

Currently, under the fair value option of IFRS, acquisition expenses are capitalised as part of the property and charged to income as fair value changes in the first year.