investment
OPEN-END REAL ESTATE FUNDS
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Survey Results Fill Out Picture of Non-Listed Market OPEN-END REAL estate funds wield considerable clout in the Canadian investment landscape. Recently released results of REALPAC’s inaugural open-end fund survey show that 15 funds, under the auspices of 13 organizations, collectively held more than CAD $143.1 billion in assets under management at the end of 2018. That compares to a market cap of CAD $112.7 billion for TSX-listed real estate companies on the same date and CAD $40 billion in assets under management reported by 22 participants representing 50 funds in REALPAC’s 2018 non-listed closed-end fund survey. “REALPAC’s continued commitment to transparency and professionalism in the real estate investment market has informed its decision to undertake the 2019 open-end fund survey to build on the market information obtained from its closed-end fund surveys over the last three years,” states accompanying commentary from the organization representing many of Canada’s 16 April 2020 | Canadian Property Management
largest real estate companies, funds and institutional investors. The defining features of open-end funds — private investment vehicles that typically hold long-maturity incomegenerating assets a nd allow for contributions and withdrawals on an ongoing basis — are well matched to investors with long-term needs for stable, predictable returns. In contrast, closed-end funds have a specific investment period, set timelines for distributing all cash flows, and typically a higher proportion of valueadded assets — all making for a more volatile mix that can yield impressive or more disappointing payouts depending on market conditions on the termination date. Seven of the surveyed open-end funds report net asset value (NAV) in excess of $1 billion, with highest NAV surpassing $6 billion. A NAV of $16-million bottoms out the scale, but it falls well below four funds reporting NAV in the $251- to $500-million range at the next rung up.
CORE STRATEGY FAVOURED Data collected between August and late November last year reveals open-end fund contributors heavily weighted to institutional investors, while fund managers generally favour multiple asset classes and are more wedded to core strategy — based on stabilized, fully-leased income-producing assets — than their peers overseeing closedend funds. While one fund reported a predominantly non-core focus in excess of 90% of investment, the greater majority — 13 of 15 — have core investment in the 76 to 100% range. “It’s not surprising that a core strategy is employed by a majority of the open-end funds because of the stability of the assets, which provide reliable cash flow and better liquidity for investors,” the survey commentary notes. Other distinguishing differences emerging from REALPAC’s two-track surveys include: open-end funds’ greater propensity to invest outside North America, with 55% of
