Luxembourg Real Estate Investment Funds 2017 · nual ALFI REIF survey. This document has been compiled by ALFI head office with the help of the ALFI REIF Survey Working Group. The

alfi survey

Luxembourg Real EstateInvestment Funds 2017

3

Executive summary 4

Introduction 6

I. CSSF data on Real Estate Investment Funds in Luxembourg 6

II. Survey coverage 7

III. Luxembourg Direct REIFs - the framework 7

III.I Regulatory framework: regulated vs unregulated structures 7

III.II Legal structures 8

IV. Scope and methodology 9

IV.I Scope 9

IV.II Methodology 9

Direct funds (REIFs) 10

1. Introduction 10

2. Initiator / AIFM origins 10

3. Legal structure and regime 11

4. Fund structure 14

5. Investment style 14

6. Liquidity 15

7. Term 15

8. Geographical focus of fund investments 16

9. Target sectors 16

10. Net Asset Value (NAV) distribution 17

11. Gross Asset Value (GAV) distribution 17

12. Target gearing of funds 17

13.1. Management fees 18

13.2. Performance fees 18

14. Direct REIF investors 19

15. Investor origins 20

16. Private placement 20

17. Accounting standards 21

18. Consolidated accounts 23

19. INREV NAV 23

20. Frequency of NAV calculation 23

21. Property valuation frequency and standards 24

22. Listing 25

23. Currency 25

24. Service providers 26

Glossary 27

table of contents

4

executive summary

The Association of the Luxembourg Fund Indus-try (ALFI) has published the 2017 Real Estate Investment Funds (REIFs) survey, its 11th edition.

Year 2016 and the first two quarters of 2017 pro-vided another good year for Luxembourg domi-ciled REIFs, as the population of REIFs continued to expand by 43 Direct Funds of which 16 are

manager-regulated AIFs1, and 15 reserved alter-native investment funds (RAIFs) dedicated to real estate. This brought the total number of REIFs surveyed to 259 vehicles, including 10 SICARs.

Real estate fund of funds, debt funds and securi-tisations were not taken into consideration in the survey.

Highlights Trends in direct REIFs

The SCS/SCSp represent most of the surveyed funds with 30.5%, under the form of a SICAV (38 funds), combined with the SIF regime or directly set up as manager regulated AIFs (16 funds).

For the first time the RAIF regime is firmly repre-sented with 15 funds in this survey. In compari-son, only one RAIF was reported in the previous survey in mid-2016. The year 2017 marks the first anniversary of the introduction of the RAIF regime.

Similar to the ALFI survey findings in 2015 and 2016 the trend as regards the legal form of Fonds Commun de Placement has continued to reverse compared to findings from earlier surveys since SICAVs now account for 47.5% of the surveyed funds. All in all, 76% of the total Direct Funds fall within the SIF regime, a slight decrease as com-pared with last year’s results.

In 2016, new fund launches were triggered overwhelmingly by initiators/AIFMs from Europe, (mainly Benelux, Germany and UK) and from the USA.

Investment strategies

The most common target sector still remains the ‘multi-sector’ strategy accounting for 40% (com-pared with 53% in the 2016 ALFI survey), nev-ertheless a decrease of the strategy compared with 2016 figures. Among the strategies, “retail” and “residential” compared equally this year with 16% and 15% respectively. “Office” investments represent 10% of the funds surveyed.

79% of the surveyed Direct Funds invest in Eu-rope, whereas 6% of funds invest globally and 5% in the Asia Pacific region.

Fund structures

Though umbrella funds remain popular due to various practical and cost considerations, the trend over the last few years has been towards simplification of structures and strategies, a trend that is again evidenced in this survey.

76% of the Direct Funds have a single compart-ment structure, compared with 68% in 2015 and 73% reported in the 2016 ALFI survey. 68% of the funds surveyed are closed-ended.

The SIF regime can be said to be firmly estab-lished as the favored legal regime for regulated REIFs in Luxembourg. The legal forms of the SCS & SCSp continue to increase in popularity since their introduction in the Luxembourg law in 2013.

Finally, we point out that 15 RAIFs have been reported in the ALFI survey in 2017, compared with only one RAIF in 2016.

Fund sizes and gearing

In line with the survey findings of previous years, smaller funds continue to make up the majority of direct REIFs, with 59% falling in the category of below EUR 100 million NAV. Overall 78 funds re-port a target NAV of “less than EUR 100 million”.

Fees

This year’s ALFI REIF survey confirms that the most commonly used basis for management fee calculations has been the NAV, with a share of 33%, compared to “other” criteria which stood at 30%.

38% of the REIFs charge a management fee be-tween 0% - 0.5%.

1 A “Manager-Regulated AIF” refers to an investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The managers of such a vehicle are typically themselves regulated or registered directly under the AIFMD.

5

Investors

81% of the investors come from Europe, the remaining share comes from the Americas and Asia/Pacific. 6% are highly diversified, which con-firms the global appeal of the Luxembourg fund regimes.

Luxembourg domiciled funds are mainly used for small groups of institutional investors, with 83% having less or 25 investors.

Similar to the findings of previous surveys, only 2% of the surveyed REIFs reported having more than 100 investors. Direct Funds are widely distributed (nevertheless with focus on specific geographical areas): a significant portion of the funds (45%) are distributed in one single country, and 7% are sold in more than six countries. 47% of the funds fall in the category of 2-5 countries.

These numbers clearly show the attractiveness of Luxembourg REIFs to a global investor base. They also underline Luxembourg’s strength as a cross border distribution hub.

Fund reporting

Comparable to last year’s results, 44% of the Funds report under IFRS.

57% of the Direct Funds report a quarterly NAV. Due to the fact that 68% of Direct Funds are closed-ended, the reporting of a monthly NAV (for 9%) is mainly due to investors’ demand for performance measurement rather than unit redemption. 54% of the funds surveyed report consolidated accounts.

70% of the Direct Funds value their property on an annual basis, with 3% requiring monthly valu-ations, a slight increase compared to the results of the previous year. Almost all of the funds use an independent appraiser, with RICS (77%) being the preferred standard.

This latest edition of the ALFI REIF survey confirms that Luxembourg remains the favored location to establish and maintain multi-national and multi-sectoral regulated REIFs, which con-tinue to appeal to institutional investors and fund managers from around the world.

6

introduction

This edition marks the 11th anniversary of the an-nual ALFI REIF survey. This document has been compiled by ALFI head office with the help of the ALFI REIF Survey Working Group.

The ALFI survey was conducted during the third quarter of 2017 and reflects the market composi-

tion as at the end of June 2017.

The main objective of producing this survey is to gain an understanding of market trends rather than claiming to provide complete and compre-hensive data, though a significant proportion of the Luxembourg REIF market has been captured.

I. CSSF data on Real Estate Investment Funds in Luxembourg

Number of Luxembourg real estate fund units*

(*) Number of single funds plus number of sub-funds of umbrella structures

Net assets under management in Luxembourg real estate funds

11 7 7 78

12 19 21 16 15 13 27 26 27 23 20 19 19 21 21

5 3 5 6

14

29

45

83

121135

166

183

218

252

280296

315 312 312 316

0

50

100

150

200

250

300

350

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3

2017

Institutional Funds / SIF (Law of 13 February 2007) Part II (2010 Law)

3,23

5

469 1,92

7

2,34

3

2,28

0

3,73

0

4,70

5

7,31

5

6,18

0

4,12

6

3,84

6

3,13

9

1,84

3

1,73

2

1,16

7

951

993

1,17

1

1,31

2

1,46

9

280146

369 522 8501557

3307

8131

14,7

46

14,8

39

17,5

80

20,9

25

24,0

82 28,7

43 32,6

85

41,8

01

49,5

97

51,5

25

52,7

75 55,6

28

0

10,000

20,000

30,000

40,000

50,000

60,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 Q2 Q3

2017

Institutional Funds / SIF (Law of 13 February 2007) Part II (2010 Law)

Source: CSSF

Source: CSSF

7

II. Surveycoverage

As shown below, the ALFI REIF survey provides a good overview of the market compared to the CSSF data. CSSF data shows that 337 REIFs were in existence as at September 2017 – which counts funds under the SIF Law of 2007, as amended; funds under the UCI Part II Law of

2010; and Funds of REIFs. While the ALFI survey managed to capture 259 Direct REIFs (SIF, Part II, but excluding Funds of REIFs). In addition, the ALFI survey includes 16 manager regulated AIFs, 15 RAIFs and 10 SICARs.

Number of fund units surveyed compared with total fund units as per CSSF

0

50

100

150

200

250

300

350

2005 2006 2007 2008 2009 2010 2011 2012/Jun 2013

2013/Jun 2014

2014/Jun 2015

2015/Sep 2016

2016/Jun 2017

Manager Regulated AIFs RAIFs

SICARs (Direct) SIFs & Part II (excluding Fund of REIFs as of 2016)

CSSF REIFs & Fund of REIFs (excluding SICARs)

III. Luxembourg Direct REIFs - the framework

Throughout this survey, real estate funds are referred to as “Direct Funds” or “Direct REIFs”. Direct Funds / Direct REIFs shall mean regulated fund vehicles, manager regulated AIFs, RAIFs and SICARs, which invest in real estate assets either directly or via intermediary entities (special purpose vehicles - SPVs).

Indirect real estate funds that invest in listed real estate related securities as portfolio investments are outside the scope of this survey and thereby not captured.

The survey does also not cover real estate fund of funds.

III.I Regulatory Framework: Regulated vs.Unregulated structures

Regulated structures, for the purposes of this survey, are those fund vehicles that are autho-rised and supervised by the Commission de Sur-veillance du Secteur Financier (the CSSF). The laws and regulations applicable to Luxembourg

regulated funds are comprised of laws, circulars issued by the CSSF and also certain Grand-Du-cal regulations.

The primary laws applicable to regulated funds are

• the law of 17 December 2010 relating to un-dertakings for collective investment (UCIs), as amended (the 2010 Law); and

• the law of 13 February 2007 on specialised investment funds, as amended (the SIF Law).

Funds that are subject to the 2010 Law can in principle be sold to any type of investor, i.e. insti-tutional, high net worth and retail investors.

The 2010 Law “Part II” funds must comply with each relevant EU member state’s local distribu-tion rules and are required to comply with certain investment restrictions [much less stringent than those investment restrictions applicable to UCITS (Part I funds)].

Funds subject to the SIF Law may only be sold to

Source: ALFI REIF survey 2017

8

so-called “well-informed investors”. In addition to the usual market of institutional and professional investors, this opens SIFs to high -worth-individu-als who meet the requirements laid out in the SIF Law. SIFs are not subject to general investment restrictions but must ensure adequate risk diver-sification and disclosure. Exceptions are subject to the review by the CSSF on a case-by-case basis.

Another Luxembourg vehicle is the SICAR, which is not classified as a fund. The “Société d’Inves-tissement en Capital à Risque” is governed by the law of 15 June 2004, as amended. It is an investment vehicle tailored to qualified investors investing in venture capital and private equity. The SICAR can take various legal forms (such as the S.C.S., S.A., S.à r.l., S.C.A. or other legal structures) and, while regulated, is not subject to diversification requirements.

Unregulated vehicles are typically set up as companies or partnerships under the law of 10 August 1915 on commercial companies, as amended. They often take the form of private limited companies (S.à r.l.), partnerships limited by shares (S.C.A.) or limited partnerships with/ without legal personality (SCS / SCSp). When companies have as their main purpose the holding and financing of participations in other companies (which in their turn may own real estate), such companies are often referred to as “SOPARFIs”.

SOPARFIs and limited partnerships do not enjoy a special legal or tax regime, but like any other fully taxable Luxembourg company, SOPARFIs benefit from the participation exemption regime on qualifying participations.

While unregulated vehicles operate in a manner similar to regulated funds, unregulated vehicles offer greater flexibility, for example in terms of choice of service providers, and lower set-up and operating costs (as opposed to investment vehicles subject to regulatory oversight and restrictions). Regulated vehicles benefit, among other things, from a favorable tax status and a high level investor protection.

Unregulated vehicles tend to have a small group of investors and a simple capital structure. Not-withstanding the foregoing, unregulated vehicles may have a higher total size than regulated funds with more investors.

This survey takes into account Direct Funds, which are regulated by the “product” laws in Lux-

embourg (i.e. 2010 Law/SIF Law /SICAR Law). Additionally, this survey includes real estate investment structures which are not regulated by the “product” laws but which may, nevertheless, be “Alternative Investment Funds” as defined by the Directive 2011/61/EU on alternative invest-ment fund managers (AIFMD) and the law of 12 July 2013 on alternative investment fund manag-ers and which are referred to herein as “Manager- Regulated AIFs”. For the second time, this survey includes the Reserved Alternative Investment Funds (RAIFs).

The RAIF vehicle combines the characteristics and structuring flexibilities of Luxembourg reg-ulated specialised investment funds (SIFs) and investment companies in risk capital (SICARs) qualifying as AIFs managed by an authorised AIFM, except that RAIFs are not subject to CSSF approval before they are launched. The RAIF was introduced by the Luxembourg Law of 23 July 2016 (RAIF Law). The RAIF regime is optional.

The constitutive documents must expressly pro-vide that the investment vehicle is subject to the provisions of the RAIF Law.

The RAIF structure allows real estate fund initiators to set up Luxembourg-domiciled funds that are not subject to regulatory approval by the Luxembourg supervisory authority, the CSSF. This option permits a significantly enhanced time-to-market for new fund launches.

III.II Legal structures

Real Estate Funds governed by the 2010 Law, the SIF law or the RAIF law may be set up either in corporate form (e.g. “SICAV-SCA” or “SI-CAF-SA”), in contractual form (“FCP”) or as a limited partnership (“SCS” or “SCSp”). A key determining factor in the selection of one of these structures is the tax regime applicable to investors: FCPs and limited partnerships are tax transparent, whereas SOPARFIs, SICAVs and SICAFs are opaque for tax purposes.

Regulated funds governed by the 2010 Law or the SIF Law as well as the SICAR Law and the RAIF Law may adopt an umbrella structure with multiple sub-funds where, for instance, sub-funds have different investment policies or are restrict-ed to certain types of investors. The umbrella fund is legally treated as a single entity. However, in principle, each sub-fund is responsible for its

9

IV. Scope and methodology

IV.I Scope

The ALFI 2017 REIF survey covers Direct REIFs under Part II Law, SIF Law, Manager Regulated AIFs, RAIFs and Real Estate SICARs.

It does not cover the intermediary financing vehicles set up for the acquisition of property or similar collective investment vehicles.

IV.II Methodology

The ALFI survey is based on a comprehensive questionnaire.

The questionnaire, which focused on the status as at June 2017, included questions relating to each fund’s:

• Legal structure and regime

• Investment style

• Geographical investment region

• Target segment of investment

• Net Asset Value (NAV), Gross Asset Value (GAV) and target gearing

• Distribution method

• Fees

• Investor types and origin

• Accounting standard (GAAP)

• Consolidated Accounts

• INREV NAV

• Valuation methodology

• Service Providers

Where possible, survey results are compared with previous ALFI survey results (ALFI REIF surveys 2007 to 2016).

own assets and liabilities. For the purpose of this survey, reference to the number of “fund units”

means the number of single funds plus the num-ber of active sub-funds in umbrella structures.

10

direct funds (REIFs)

1. Introduction 43 new funds were launched as from December 2016 and 3 new funds were reported as at June

2017, bringing the Direct Fund population sur-veyed to 259.

Number of fund units launched

2 0 1 1 4

7

18

9

18

9

15

25

16

25

29

33

43

30

5

10

15

20

25

30

35

40

45

2000or

before

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 June2017

2. Initiator / AIFM origins

Over the years, initiators from Europe were re-sponsible for the majority of the new REIF launch-es. This year, due to their AIFM location, Benelux countries represent 27% of the initiators, followed

by Germany and the UK. Initiators from the US represent 8.5% of total fund launches. 68% of the initiators are AIFM compliant, which represent a 10% raise compared to last year’s survey.

Proportion of Direct REIFs launched byinitiator/AIFM origins

AIFM compliant

EU64%

Europe (non-EU)20%

North America14%

Asia / Pacific2%

Yes 68%

No 32%


Source: ALFI REIF survey 2017 Source: ALFI REIF survey 2017

11

Proportion of Direct REIFs launched by initiator/AIFM origins

3. Legal structure and regime

The majority of Direct Funds (76%) fall under the SIF law. This reflects the continued popularity of the SIF regime for real estate fund initiators

seeking an onshore regulated investment fund ve-hicle for all types of alternative investment fund products. This year’s survey includes 15 RAIFs.

SIF (2007 law)76% Part II (2010 law) 8%

SICAR 4%

Manager Regulated AIF 6.2%

RAIF 5.8%

Legal regime

74 of the 259 Direct Funds use the FCP (not applicable for SICARs and Manager-Regulated AIFs)as the vehicle type, usually in combination with the SIF regime.

The increased popularity of the SICAV-SCA, the SICAV-SA and the SICAV SCS/SCSp combina-tions reflects the versatility of the Luxembourg

regulatory environment in offering both trans-parent and opaque vehicles and in supporting regulatory regimes suitable to initiators’ and investors’ requirements. It may also be indicative of an increased use of Manager-Regulated AIFs, specifically in limited partnership form (at the expense of the FCP).

2

71

15

11

51

5

1

9

5

12

1

22 22

4

28

0

10

20

30

40

50

60

70

80



12

FCP 28.6%

SICAV (SCA)17.4%

SICAV (SA)15.4%

SICAV (SCS/SCSp); 14,6%

SICAR (SCA) 0.4%

SICAR (SA) 1.5%

SICAR (Sarl) 1.2%

SCA 1.2%

SA 1.2%

SICAF 2.3%SCS/SCSp 15.8%

Sàrl 0.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

The most recent development in legal structuring has been the updating of the limited partnership laws in Luxembourg (the SCS and SCSp) with

79 funds reported (30.5% ).47.4% of Direct Funds are under a SICAV form.

Basic structure

FCP28.6%

SCA19%

SA18.1%

SICAF2.3%

SCS/SCSp30.5%

Sàrl1.5%

FCP28.6%

SICAV47,4%

SCA1.2%

SA1.2% SICAF

2.3%SICAR3.1%

Sàrl0.4%

SCS/SCSp15.8%



Source: CSSF

13

CSSF Data as at 30 June 2017 excluding SICARs(in terms of fund units)

Legal regime and basic structure combined

Basic structure

Legal regime

Part II (law 2010) / SICAF0.9%

Part II (law 2010) / FCP4.8%

Part II (law 2010) / SICAV0.6%

SIF (law 2007) / FCP27.0%

SIF (law 2007) / SICAV61.6%

SIF (law 2007) / SICAF5.1%

Part II (law 2010)6%

SIF (law 2007)94%

SICAF6%

FCP32%

SICAV62%

Source: CSSF

Source: CSSF

14

76% of the surveyed Direct Funds are single compartment vehicles. The remaining funds have a multi-compartment umbrella structure (i.e. sub- funds). 14% use the umbrella structure solely for separate investment strategies (same as last year’s ALFI REIF survey), 3% use an umbrel-la solely for co-investment, and 13% combine both types of usage. 8% of the funds use feeder

vehicles and 12% have complex share classes, allowing, for example, different management and performance fee structures to be managed for different investors. 25 of the surveyed funds use a pooling structure. The overall trend over the last several years has been towards simplification of structures and strategies, which was confirmed by this year’s results.

4. Fund structure

3%

14%

13%

76%

12%

8%

10%

97%

86%

87%

24%

88%

92%

90%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sub funds used for co-investmentonly

Sub funds used for separateinvestment strategies only

Sub funds used for co-investment& separate investment strategies

Single compartment funds

Complex share classes

Feeder Vehicles

Pooling

Yes No

5. Investment style

59% of the Direct Funds surveyed (excluding SICARs) are “Core” funds, with the remainder split between “Value-Added” (27%) and “Oppor-tunistic” (14%) fund styles. In terms of regulatory regimes, all SICARs must be “Opportunistic”

funds. Part II (2010 Law) funds predominantly pursue a “Core” strategy, while the SIF regime is flexible (encompassing “Core”, “Value-Added” and Opportunity strategies).

Core 59%

Value-Added27%

Opportunistic14%



15

6. Liquidity 68% of the surveyed funds are closed-ended, which supports a trend noticed over the last sev-eral years. 5% of the funds are semi open-ended, with 11% being fully open-ended with no restric-tions on redemptions. 16% of the funds are open with restrictions.

This reflects the inherent illiquidity of real es-tate as an asset class and thus the difficulties of providing investors liquidity upon demand. It also illustrates that investors are allocating capital to funds that offer some sort of liquidity.

7. Term 40% of all Direct Funds have a term duration of 8-10 years or 11-15 years, while less than half of the funds (49%) are represented in “infinite life” term.

Only 11% of the funds have a duration of up to 7 years, which reflects the longer timeframe usually required by real estate funds to fully implement their strategies.

up to 7 years11%

8-10 years27%

11-15 years13%

Infinite 49%

Closed68%

Open - No restrictions11%

Open - restrictions16%

Semi-open (not continuous)5%



16

8. Geographical focus of fund investments

73% of the funds invest in the EU-28. 17 funds invest only in the North Americas – with only 6 in last year’s ALFI survey – and 13 funds in the Asia / Pacific region. 15 funds invest globally, reflecting the suitability of Luxembourg REIFs

for investment strategies focusing on a range of different countries.

Luxembourg REIFs are used for investment in all major regions of the world.

EU-28 + EFTA Only1.2%

EU28 + other Europe Only 3.9%

North America 6.6%

EU-28; 73.3%

Central/South America2.3%

Global 5.8%

Middle East & Africa1.2%

Asia/Pacific 5.0%

EFTA (non-EU) 0,7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

9. Target sectors 40% of the funds surveyed represent multi-sector investments. This indicates that a larger pro-portion of the surveyed funds have a diversified

investment strategy in terms of property types. Last year’s results showed 50%.

Office Predominantly10%

Retail Predominantly16%

Industrial Predominantly2%

Residential Predominantly15%

Hospitality Predominantly6%

Multi Sector 40%

Other Single Specialist 6%

All Sectors5%

Luxembourg REIF investment regions



17

10. Net Asset Value (NAV) distribution

Net Asset Value(NAV in EUR million)

153

44 35

15 4

2

5

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+

Target NAV(NAV in EUR million)

11. Gross Asset Value (GAV) distribution

Gross Asset Value(GAV in EUR million)

Target GAV(GAV in EUR million)

51.6%

15.1%

17%

10.1%2.7%

0.8%

2.7%

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+51.6%

15.1%

17%

10.1%2.7%

0.8%

2.7%

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+

35.5%22.7%

20.9%

12.3%

3.2%

1.4%

4%

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+

12. Targetgearing of funds

Target gearing of funds

28%7%

19%

22%8%

16%

Less than 20%

20%-30%

40%-50%

50%-60%

60%-70%

70%+

59.3%

17% 13.6%

5.8% 1.6%

0.8%

1.9%

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+

26.7%

14.7%

26.7%

19.4%

3.7%

4.6%

4.1%

< 100

100-200

200-400

400-800

800-1200

1200-1800

1800+




18

13.1. Manage-ment fees

33% of the surveyed Direct Funds use NAV as the basis for their management fee calculation.

The majority of the funds that charge fees (38%)

charge in the 0%-0.5% range, followed by the 0.51%-1% range (24%).

Management fee calculation basis for Direct REIFs

Management fee range distribution for Direct REIFs

NAV33%

GAV18% Other

30%

Commitments15%

Nil4%

0%-0.5%40%

0.51%-1%25% 1.01%-1.5%

21%

> 1.5%14%

More than half of the surveyed Direct Funds do not levy a performance fee. For the funds

charging performance fees, 46% charge a fee of 20%.

13.2. Perfor-mance fees

Yes48%

No52%

Performance fee charged Performance fee (%) charged (as per PPM)

0-4%2%

5%-8%43%

9%-12%21%

13%-20%5%

Specified Benchmark

29%

Performance fee hurdle rate

= 20%46%

< 20%37%

> 20%17%




19

14. Direct REIFinvestors

Comparable to previous surveys, the 2017 survey results show that Direct Funds typically do not have a large number of investors. 83% of the Direct Funds have less or 25 investors and 55% have five (5) investors or less, while only 2% have more than 100 investors.

This reflects the fact that the majority of inves-

tors in such funds are institutional and thus, inherently, there tends to be a smaller number of investors per fund. 15% of funds have more than 25 investors.

This continues the trend toward a larger number of smaller funds, with a smaller number of inves-tors per fund.

Number of investors by Direct REIFs

1-5 investors55%

6-25 investors28%

26-100 investors15%

100+ investors2%

Virtually all of the funds surveyed (86%) have in-stitutional investors, with “high net worth individ-

uals” (HNWI) investing in 9% of the funds. Retail investors are not represented.

Type of investors

86%

68%

4%

12%

1%

4%

9%16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Majority investor types Secondary investor types

HNW Individuals

Family Office

Private Bank

Institutional



20

The majority of investors (81%) continue to be European, while 11.6% of the funds have inves-tors from the Americas. 46% of the funds have investors from one (1) country, 47% (compared to

42% last year) of the surveyed funds have inves-tors from two to five countries and 6% only have investors from six to ten countries (comparable to last year’s ALFI survey).

15. Investor origins

Origin of Direct REIF investors

Americas11.6%

Asia / Pacific1%

Europe81%

Highly Diversified6%

Middle East0.4%

Number of investors countries

16. Privateplacement

Number of countries where Luxembourg REIFs are registered for PUBLIC distribution

Private placement

Yes89%

No11%

none80%

1 country11%

2-5 countries4%

6+ countries5%




2-5 countries 47%

1 country 46%

6-10 countries 6%

11+ countries 1%

21

In confirmation of the results of the 2015 and 2016 ALFI surveys, 56% of all surveyed funds ap-ply standard Luxembourg GAAP (Lux GAAP) as

accounting standard, with the remainder applying IFRS.

Fund GAAP

Lux GAAP56%

IFRS44%

IFRS fund units and LUX GAAP fund units adjusting for various items

27%

23%

24%

17%

13%

9%

73%

77%

76%

83%

87%

91%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Formation expenses

Transaction costs

Deferred taxation

Fair valueof financial instruments

Debt at FV or(Y/N)

Other adjustments

YES NO



22

33

109 113

58

82

114

0

20

40

60

80

100

120

Lux GAAP - written off Lux GAAP - capitalised / amortised IFRS

Fund units

Formation Expenses Transaction Costs

Trading NAV Adjustments

Accounting treatment of financial instruments

Fair Value81%

Amortised Costs19%

Fully provided for- in line with IFRS6%

Fair Value- similar to INREV15%

Other3%

No76%

Deferred taxation treatment




23

The majority (57%) of Direct Funds report a quarterly NAV calculation, while 26% produce an annual NAV. Among all the funds surveyed, 24

report a monthly NAV and 22 funds a semi-annu-al NAV.

18. Consolidtated accounts

20. Frequency of NAV calculation

19. INREV NAV

Yes54%

No46%

Yes20%

No80%

Semi-Annual8%

Quarterly57% Monthly

9%

Annual26%

Since 68% of the funds are closed-ended, the reporting of quarterly NAV is more likely due to investor demand for performance measurement

rather than for the purposes of pricing the issue and redemption of units.




24

Fund level valuation (*)

Yes - Fully delegated to an external valuer

60%

No - Performed in house by the AIFM

38%

No - Performed by a seperate in-house function

2%

(*) Graph refers to 80% of the Direct Fund population surveyed.

Almost all (93%) of the surveyed funds use an independent appraiser in respect of their property valuations.

21. Propertyvaluationfrequency and standards

Frequency of property valuation

Semi-Annual9%

Quarterly14%

Monthly3%

Annual70%

Other 1%

None3%

77% of the Direct Funds’ valuations are carried out under RICS valuation and appraisal stan-

dards. This is by far the leading standard for property valuations used over years.



25

Valuation standards adopted

RICS77%

TEGOVA1%

ISVC1%

Other10%

None11%

22. Listing Out of the 259 Direct Funds covered in this survey, only 5 (2%) are listed on the Luxembourg

Stock Exchange (Lux MTF). One fund reports several listings.

23. Currency The great majority of funds (82%) report in EUR, while 12% report in USD and 4% in GBP, both

slightly up from recent results.

2% 2% 0.4%

98% 98% 99.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Listed Yes / No Listed in Luxembourg Several Listings

Yes No

EUR82%

USD12%

GBP4%

Other2%




26

24. Service providers

50%

27%

50%

73%

0% 20% 40% 60% 80% 100%

Portfolio Management Delegated

Risk Management Delegated

Yes No



Credit institution (bank) 40%

Not a credit institution (bank)60%

Same firm as Administrator55%

Different Depositary 45%

Third Party Provider 62%

Self Domiciled 38%

0% 10% 20% 30% 40% 50% 60% 70%

Domicilation and corporate

Central administrator

Depositary

27

glossary

2010 Law

2007 Law

AIFMD

CSSF

Direct Fund

EFTA

EU 28

ELTIF

FCP

GAAP

GAV

HNW

HNWI

Indirect Fund

IFRS

Initiator / AIFM

INREV

Investment style

ISVC

The law of 17 December 2010 on undertakings for collective investment as may be amended from time to time (UCIs)

The law of 13 February 2007 on specialized invesment funds as amended (SIFs)

Alternative Investment Fund Managers Directive, Directive 2011/61/EU of the EP and of the Council of 8 June 2011

Commission de Surveillance du Secteur Financier (Luxembourg supervisory authority for the financial sector)

Fund investing in property assets or structures holding property assets

European Free Trade Association (Iceland, Liechtenstein, Nor-way, Switzerland)

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Nether-lands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom

European Long-Term Investment Fund, a pan-European regime for Alternative Investment Funds (AIFs) which channel the cap-ital they raise towards European long-term investments in the real economy, in line with the European Union (EU) objective of smart, sustainable and inclusive growth

Fonds Commun de Placement: Common fund, entity without legal personality based on contractual agreement

Generally Accepted Accounting Principles

Gross Asset Value

High Net Worth

High Net Worth Individual

Fund investing in real estate securities or other real estate funds

International Financial Reporting Standards

Initiator origin region : Europe, Asia/Pacific/ME, Americas

European Association for Investors in Non-listed Real Estate Vehicles

Core : Stable income returns, stabilised properties located in strong and low risk markets; geared at less than 50%

Value Added : combination of income and capital return; stabi-lised properties located in low to medium risk markets, as well as an element in development or opportunistic investments; geared from 40% to 70%

Opportunistic : primarily through capital return; higher risk properties (e.g development projects, property repositioning, assets in higher risk countries or distressed assets); geared is in excess of 60%

International Standards Valuation Committee

28

Liquidity

LuxSE

ManagerRegulated AIF

NAV

REIF

RICS

SA

SCA

SCS

SCSp

SICAF

SICAR

SICAV

SIF

RAIF

SOPARFI

SPV

TEGOVA

UCI

Closed-ended : Fund may not, at the request of investors, repurchase directly or indirectly their units or shares

Open-ended : Fund may, at the request of investors, repur-chase directly or indirectly their units or shares

Open-ended with restriction : in addition subject to further conditions such as maximum number of units to be redeemed in a period; extended notice period; early redemption penalties etc.

Semi-open ended : series of distinct equity offerings after the initial launch, but not on a continuous basis; ability of investors to redeem capital at certain times during the fund life; infinite life.

Luxembourg Stock Exchange

Investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The managers of such a vehicle are typically themselves regulated or registered direct-ly under the AIFMD.

Net Asset Value

Real Estate Investment Fund

The Royal Institution of Chartered Surveyors

Sociéte anonyme (public limited company)

Société en commandite par actions (partnership limited by shares)

Société en commandite simple (limited partnership)

Société en commandite spéciale (special limited partnership)

Société d’investissement à capital fixe (investment company with fixed capital)

Société d’Investissement en Capital à Risque (investment com-pany in risk capital)

Société d’investissement à capital variable (investment compa-ny with variable capital)

Fonds d’investissement spécialisé (specialized investment fund)

Reserved Alternative Investment Fund

Société de participations financières (financial holding company)

Special Purpose Vehicle

The European Group of Valuers’ Associations

Undertaking for Collective Investment within the meaning of the 2010 Law

notes

The ALFI Real Estate Funds Sub-Committee conducts this sur-vey on an annual basis in the most comprehensive form possi-ble.

The ALFI Real Estate Funds Sub-Committee would like to thank all those involved in compiling the data and commentaries for the ALFI REIF survey 2017.

alfi - association of the luxemborg fund industry

B.P. 206L-2012 Luxembourg

Tel: +352 22 3026-1Fax: +352 22 30 93

[email protected]

20 November 2017

Documents

Luxembourg Real Estate Investment Funds 2017 · nual ALFI REIF survey. This document has been compiled by ALFI head office with the help of the ALFI REIF Survey Working Group. The