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European pooled property funds stage recovery

Institutional European pooled property funds have made a significant recovery over the past 12 mths.

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The funds delivered an 8.3% local currency return to the end of June, over 25% more than the -18.6% negative performance recorded during the previous year to June 2009.

IPD said the majority of the recovery was achieved within the first six months of 2010, which contributed a 4.1% six-month return, reflecting the improvement in the underlying performance of key direct European property markets, the positive influence of leverage in rising markets as well as shrewd investment strategies, said IPD.

The data is based on a universe of 269 funds focused on a broad selection of markets and strategies accessed by a global market of institutional investors representing a NAV of €86.5bn.

“These figures illustrate a substantial recovery for the European pooled property fund market,” said Cameron McVean, Head of Fund Services at IPD. “Although lower the performance achieved during the bull market years of 2005 and 2006, the headline annual return marks a return to more consistent performance in line with the first half of the last decade.”

IPD said the returns for specialist and balanced property funds over the past three years to June 2010 reveal the significant impact leverage can have on the performance of investments. Specialist funds, which adopt sector specific strategies and typically apply higher levels of leverage, delivered 9.2%, outperforming balanced funds, which are well diversified but utilise debt to a lesser extent and which returned -2.4%.

McVean added: "The headline results mask a number of factors: improvements in some key underlying direct European property markets; ongoing oscillations in the currency markets; the consequences of geographic and sector investment strategies; as well as the impact of leverage. All of which contributed to a 62 percentage point local currency-denominated total return spread across the 1st to 99th percentiles – at 38.3% and -23.9%, respectively.”

Across Europe local market returns varied significantly, the best six months and 12 months performance being offered by the UK, which measured by the IPD UK Pooled Property Fund Indices recorded 9.5% and 22.9% respectively. The Iberian market also recorded good performance for the same periods (5.1%) for the first half of 2010 and an annual return of 6.4%.

Pan European Open-Ended Funds – funds operating cross-border strategies through Europe – for which IPD has developed a quarterly benchmark, also performed relatively well during the first half of 2010 delivering a total return of 4%. Comprised of a cohort of 17 funds with consistent valuations this series tracks the performance of funds aimed at investors wishing to access European property markets.

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