A Monumental U.S. Property Fund Index
By Keith Loria, Contributing Editor
Earlier this summer, the Pension Real Estate Association and Investment Property Databank came up with a plan to co-sponsor the first-ever U.S. Property Fund Index designed to measure real estate investment performance for open-end, commingled funds.
This past week, PREA and IPD unveiled the consultative release of the new Index for the second quarter of 2012 in a webinar, which encompasses the entire risk spectrum of core, value-add and opportunistic strategies, as well as both diversified and sector specific funds.
“This provides really for the first time a complete look through on the performance of commercial real estate funds,” Jim Valente, IPD North America’s director, performance & risk analytics, told Commercial Property Executive. “We have transaction-based industries that give us prices, some give us real estate return, which is kind of market performance, and we have some that give us fund level returns. What this does is it brings together the entire picture of performance from all the assets of the portfolio.”
The U.S. Property Fund Index enables IPD clients and PREA members to evaluate their performance in a global context.
“These funds are pretty big and for as much progress as we have made, there is still an incredible lack of general transparency in the private equity real estate market,” Valente said. “Now, the portfolio manager has the ability to sit and use this and whether it’s leveraged or cash drag or other investments or operating or not operating assets, it all ties together in the analysis and it all ties together in a public benchmark.”
A key finding of the report, Valente said, was the cash drag and how big variance of contribution it was across the funds.
Another interesting number was that the Direct Unleveraged Real Estate came in as a total return of 2.41 percent.
According to Greg MacKinnon, director of research for PREA, there is a list of 23 funds thus far committed to be in the index and the group is working hard to expand that going forward. However, only 16 of the funds were included in the Q2 numbers.
“We are able to now in an index for the first time completely connect the dots,” MacKinnon said. “Our first official release will cover the Q4 period scheduled to be released in February 2013.”