Luxembourg regulated real estate investment fund industry grows 7.22%, bringing total AuM to EUR 88.2 billion

The 14th annual edition of the ALFI Real Estate Investment Funds Survey showcases the resilience and growth of the real estate investment sector in Luxembourg.

  • AuM of Regulated Real Estate Investment Funds (REIFs) increases by 7.22% in 2020, which sees AuM soar to EUR 88.2 billion
  • Multi-sector strategies are most popular for investors, with a 42% allocation
  • For single-sector strategies residential had the highest allocation at 12%, followed by retail and office (with 10% respectively)
  • Smaller funds make up the majority of REIFs, with 53.5% with a NAV of under EUR 100 million

 

Real Estate Investment Funds Survey

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2020 marks yet another outstanding year for the real estate asset class. With 449 vehicles surveyed (the highest ever), the 14th ALFI REIF Survey continues to provide a mature view of this market segment and the tendencies that, year on year, impact the industry. It can now be safely confirmed that the launch of the RAIF regime and the revamping of the Partnership regimes in Luxembourg were a recipe for success and perfectly answered the needs of the market and investors.

With the majority of REIFs investing in Europe and promoted by EU investors, the survey provides clear evidence that Luxembourg funds are the mainstream solution to set up and manage EU Real Estate investment strategies. The success, however, spans further into other geographical areas, which can be witnessed by the increase of REIFs that are investing in North America, for example.

Other topics and findings of the research were:

  • New launches: 77 new real estate investment fund units were launched in 2019 and 36 new fund units were reported as at September 2020. The number of surveyed REIFs continued to consistently grow as per last years’ as well, this time by 106, bringing the total number to 449 surveyed vehicles;
  • Investment Style: 40% of the REIFs surveyed are “Core” funds, 13% are “Core+” funds, 28% “Value-added”, and 19% “Opportunistic”. 67.3% of REIFs focus on investment in the EU, 8.9% in North America, 8.2% globally and 7.8% in Asia Pacific;
  • Fund structures, liquidity & durations: 65% of the surveyed funds are closed-ended, with 25% being open with restrictions, 8% open with no restrictions, and 2% semi-open (not continuous). Around 50% of all REIFs’ fund terms are infinite, 36% have a term duration of 8 to 10 years or 11 to 15 years, and 14% have a duration of 7 years or less;
  • Fund size & gearing: In line with the survey findings of previous years, smaller funds continue to make up the majority of REIFs, with 53.5% falling in the category of a NAV of under EUR 100 million. Overall, 131 funds reported a target NAV of less than EUR 100 million. 46% of funds aim to keep their gearing below 20% loan-to-value ratio (LTV), while a further 43% aim to keep LTV levels to below 60%.

The ALFI REIF Survey attempted to provide an initial outlook of the impact on the REIF industry arising from COVID-19. Whilst the results may seem promising (e.g. out of the whole 449 funds surveyed, only one fund temporarily suspended in 2020, 11 funds admitted to having had large redemptions in 2020, 11 funds surveyed indicated that redemptions were temporarily suspended and 4 funds activated deferred redemptions/gates) ALFI will keep monitoring the effects of this global crisis.

Luxembourg toolbox

The Grand Duchy is uniquely positioned to benefit from this growth. As the survey indicates, asset managers view Luxembourg as an attractive hub for REIFs. Its toolbox, the wealth of expertise across the ecosystem and the role of the regulator are all factors that contribute to Luxembourg’s success in this segment.