INREV launched a fund style classification guide at MIPIM this month, to mixed reviews. The guide sorts funds into core, value-added and opportunity categories and will be used for all new funds in INREV’s quarterly index. Previously, fund managers “self-declared” the style of their products.
INREV said its approach was based on the notion that style is the result of a bundle of risks, with an emphasis on ‘fund activity’ derived from managers’ chosen strategies, the portfolio structure and composition. The fund’s return is simply the result of the process rather than a guide to its style.
The three main risk factors are: the return derived from income; development exposure; and leverage (see table). When Reading University applied INREV’s methodology to a sample of 200 funds, more than 25% did not match their current classification.
Alessandro Bronda, Aberdeen Property Investors’ head of investment strategy, said there should be a category for new unleveraged core funds, given Solvency II’s leverage rules.