European non-listed real estate fund association INREV has refined what constitutes a core fund to more clearly mark the difference between such funds and vehicles with a value-added investment style.
European non-listed real estate fund association INREV has refined what constitutes a core fund to more clearly mark the difference between such funds and vehicles with a value-added investment style.
'We've evolved the INREV Style Classification because it's the right thing to do,' said INREV chief executive Matthias Thomas. 'In March last year we introduced the new classification. Response from the industry was on the whole positive, however feedback from some members indicated concerns. We've acted on these concerns and adapted the model to better reflect the realities fund managers face.'
The classification of core funds is now based on three operating variables: target percentage of non-income producing investments (=15%); target percentage of (re-)development exposure (=5%) and target return derived from income (=60%).
The loan-to-value consideration is no longer being taken into account for classifying funds as core.
INREV has reviewed the leverage parameters to address the issue raised by some fund managers that a 40% ceiling was impractical for core European funds. This ceiling limited the flexibility required to pursue currency hedging and/or to explore different tax structures, according to some investors.
Under the refined classification, leverage parameters divide core funds into two sub-categories: less than or equal to 40% and more than 40%.
'These adjustments are subtle but significant. They provide a further layer of information around core funds for investors, and greater clarity on the leverage issue for fund managers,' Thomas said.
The classification for value-added and opportunity funds remains unchanged.
