According to INREVs study, which measures a universe of 243 closed-end vehicles managed by 117 managers, 97 of which are due to terminate in the coming decade, representing a total NAV of €23.0 billion.
Within this wider pool, are 50 funds due to mature before the end of 2021 which could potentially bring €13.2 billion of assets onto the market. Among these, 32 funds with a total NAV of €8.3 billion responded to a questionnaire-based survey which explores the factors affecting termination decisions.
Eleven funds are expected to terminate in 2019, according to INREV’s study, and a further 23 in 2020, the year with the highest number of terminations in the sample period.
Most of those funds due to terminate in the next three years are either core or value added, which respectively represent 44.0% and 42.0% of such funds.
The UK and the retail sector are facing most terminations
Twenty-four (48.0%) of the funds with termination dates in 2019, 2020 and 2021 have a single country strategy, of which eleven targeted the UK. These funds could potentially bring €3.9 billion NAV of assets to the British market in the next three years.
Fund performance has improved in recent years
Over the last 12 years, funds with a termination date in 2019 on average generated returns of 2.9% per annum, while those due to terminate in 2020 averaged -1.4% per annum. This cohort of funds was most impacted by the financial crash of 2008.
Finally, funds terminating in 2021 posted average returns of 5.6% in the last 12 years. However, all groups have delivered positive returns over the last two years.
Liquidating funds overperformed funds in extension
Liquidating funds have performed better than those in the extension phase over the last eight years. Funds in extension generated an average total return of 3.4% per annum, while liquidating funds averaged 6.8% in this period. Replicating the analysis over a five-year period produces a similar result, with liquidating funds delivering higher returns than those in extension.
Nearly 90% of the cohort have leverage levels below 60%.
Combining core and value-added styles, funds terminating between 2019 and 2021 overwhelmingly selected either liquidation or extension as their preferred option. Similarly, almost all funds (93.8%) cited the terms set out in their original fund documentation as the main reason for terminating, followed by current market circumstances (81.3%).
Lonneke Löwik, INREV’s CEO, explains:
‘These data add colour to the general picture that we have come to recognise. There are no shocks, but the volume of retail assets expected to be offloaded is surprising. The study results also raise an interesting general question about how managers will deal with the challenges of bringing assets to market at a time when pricing looks set to come under increasing downward pressure.”