The collation of descriptive data on UK unlisted funds can be traced back to the early 1990s with the publication of the first Yearbook by the Association of Property Unit Trusts (the forerunner of AREF). The rationale was to streamline the process of collecting fund data and ensuring standardisation of the information collected. The successor to the original book is the PFV Handbook which is produced by MSCI and is available as a pdf or spreadsheet to members of AREF and subscribers to MSCI’s UK subscription service. It provides investors with factual data, past returns and the current portfolio weights for a tradeable universe of the largest UK unlisted real estate funds. The performance data in the PFV Handbook is calculated quarterly by MSCI and is presented alongside the Index. The Index has a history reaching back to 1978 when Philips and Drew created their own performance index for Property Unit Trusts. The Index morphed into its current form in June 2000 with the evolution of the MSCI/AREF Property Fund Index. Originally it was sponsored by AREF and HSBC and calculated by MSCI (then known as IPD).
Five key drivers affect fund returns: cash holdings, leverage, fees, structure, and style. The research team have analysed each driver, using data in the PFV Handbook to greater understand what has happened to the AREF fund universe since the GFC. The greater the understanding of these drivers the better equipped investors are to form an opinion on which funds most closely meet their investment requirements. Data on fund sector weightings allows investors to construct their own tailored portfolio from a combination of funds. As real estate assets are large and heterogenous investors also require additional data on concentrations of exposure to individual properties, tenants and lease expiry dates (an exposure to more properties and tenants would lower the expected tracking error of a fund). Investors may also seek to tilt their portfolio towards one or more stock factors, such as long leases, development or higher quality property. Clearly, there are additional steps in the due diligence process, such as meeting fund managers to discuss their investment process, investment philosophy, governance and CSR policies which need to be carried out before an investment decision is finally made but the availability of good quality consistent data which will address all of the areas mentioned above is crucial.
It is in the researchers’ opinion the analysis of the data in the PFV Handbook & the MSCI/AREF Property Index should, in an ideal world, provide current and reliable information which investors can use to carry out significant fund due diligence, albeit from the desk-top, but of a comparable level to that carried out in the Capital Markets. This research will show that a great deal of interesting analysis can be undertaken, but there are shortfalls and inadequacies, both in the data and the way it is collected, which mean that investors cannot rely on this alone. They are forced to approach fund managers to supplement and update information which is fundamental to their investment decision making. There have been many notable changes to the UK real estate fund universe since the GFC, many of which have impacted fund structures, portfolio characteristics, style leverage. Investors have rung the changes and the industry has had to respond. It is frustrating that over this time the way we as an industry have managed the fundamental building blocks of investment decision making has not evolved to meet the needs or expectations of the investors.
Please note: the analysis is restricted to funds with a full performance history and therefore excludes daily traded retail funds in sections two, three and five.
AREF Members can view previous copies of the Property Fund Vision on the AREF website here
