Non-listed property funds offer a long-term indirect property investment which delivers the same risk/return characteristics as directly owned properties, in terms of valuation and payout.
By investing in a diversified portfolio of non-listed property funds, an investor benefits from a level of geographical and sectoral diversification which significantly exceeds the diversification possible with direct investments. The reason for this is the much lower minimum investment required to participate in an investment. As an example, the minimum investment for most funds starts at USD 0.5m, with the fund usually owning at least 10 properties. Assuming an average property value of 20m, a direct property investor would have to invest USD 200m in order to reach the same level of diversification.
The fund units are measured at Net Asset Value (NAV). Therefore, essentially the fund provides a return equivalent to that achieved through directly owning property. All the characteristics of a direct investment remain intact. The same holds true with regard to volatility which is lower than for listed property investments and is also equal to that of a direct property investment.
Even though non-listed property funds offer a lot of advantages compared to direct investments, their selection is difficult and the monitoring demanding. This is due to the complexity of the investment vehicles, which structurally are similar to private equity funds, and also to their global scale. Furthermore, most investors do not have the network channels to access the product providers. As a consequence, most investors rely on the expertise of a fund of funds strategy. This is particularly true for small and mid-sized investors.