On 2 May 2012 as from 6.00 p.m. LuxReal – the Real Estate Association of Luxembourg with the support of the IPD and State Street invited for its “LuxReal FORUM IPD Pan-European Funds Index“, being held at the offices of State Street, in Luxembourg.

At a packed LuxReal FORUM in State Street’s offices in Luxembourg, Sandra Müller, President of LuxReal, introduced the evening event on IPD’s new pan-European fund index (pEPFI). The debate, chaired by Keith Burman, Senior Managing Director, of State Street, generated considerable debate on the status and relevance of the new index. The panel, comprising Alessandro Bronda from Aberdeen Asset Management, David Hedalen (Standard Life Investments), Alexander Taft (Invesco Real Estate) and Sven Rein (BNP Paribas REIM) stressed the significance of the index in helping increase transparency and insight for investors and managers.

Alexander Taft explained that prior to the creation of the index it was “hard to build a proper pan-European benchmark. For a number of years we [Invesco Real Estate] had the intention of benchmarking our pan-European portfolio to IPD and it is only now that we have a meaningful and robust benchmark against which to do this”. Alessandro agreed, explaining that most of Aberdeen’s 23 commingled funds and 60 separate accounts use IPD’s country-indices or sub-groups of INREV’s fund indices as benchmarks for their performance. The pan- European index is creating significant interest within Europe, and globally, with many investors seeking exposure to Europe liking the robustness and coverage provided by pEPFI.

The panel was preceded by a brief presentation by Dr’s Peter Hobbs and Daniel Piazolo, explaining the scope of the pEPFI and other European indices. Peter provided a recap of the pressures that lay behind the development of the index saying, “it was a perfect case study of a group of leading managers coming together to pool their assets for mutual benefit”. An important part of the process was a Design Group who set the rules for funds to be included in the index, such as being “open ended and appraised externally by “Red Book” methods on a quarterly basis”. This agreement over the rules means the index provides a set of broadly comparable funds comprised of many of Europe’s leading managers. David Hedalen of Standard Life Investments commented that “another value of the index is as an internal management tool, in helping us improve understanding of our strengths and weaknesses in terms of strategy (which markets and property types) and stock selection and management skills.”

The debate covered many other topics including:

• The relevance of the index for regulators and risk managers in providing understanding of the differential risks of European real estate portfolios, particularly in relation to AIFMD and other regulatory requirements.
• The discrepancy between asset level and fund returns, driven by the costs of running real estate portfolios, cash, leverage and the unwinding of interest rate swaps.
• The limitations of the current relatively small sample size and process for including new funds in the index
• The rationale for the index being based on “open-ended” rather than “closed-ended” funds.
• The difference between Red Book valued funds (as in pEPFI) and the German-based Open-end and Special funds, and the way both sets of indices provide valuable benchmarks for the different communities.