One of the most interesting phenomena of the twenty-first century on a global level is certainly the development of managed savings instruments in real estate. Reits (especially in the USA) and real estate funds (mainly in Germany) already existed in the last century, but it is only in the last twenty years that the trend has become global. In 2000, the asset allocation of funds and Reits in the world did not reach 700 billion euros. At the end of 2023 they are estimated to be no less than five trillion euros.
Le masses managed by large operators worldwide have increased in recent years, but within these assets the share of the properties it rose from less than five percent at the beginning of the century to almost twenty percent. In an era with low or even no inflation, the yield on real estate becomes interesting, because it is not high but with low risk.
Furthermore, alongside investors, the professional services supply chain, also increased tenfold in Europe alone.
Reits and real estate funds
75 percent of the world's asset allocation ends up in Reits, which are listed companies with precise governance and profit distribution rules. In Europe, however, the instrument preferred by the markets is the real estate fund, especially unlisted. The real estate fund is an autonomous entity that collects money from small and large investors and invests it according to the policies indicated in its sales prospectus. Management is entrusted to an asset management company, and is supervised by the central banks and the various Consob. Furthermore, the ratings are written by independent experts.
At the end of 2023 the net assets of European real estate funds has exceeded one trillion euros, with a growth of approximately seven times compared to the beginning of the century. In Germany the assets are around 300 billion and in Great Britain over 200. There are almost two thousand active funds in Europe.
Listed and unlisted funds
Il first Italian fund was born with the new century. In the first years, the real estate fund was designed and sold as a collection and investment tool in real estate for a public of small savers. The asset management companies are all banks and their networks sell this product over the counter. The underlying problems that prevented the development of this market in Italy (but also in other European countries) soon emerged. This type of fund issues shares that are traded on the stock exchange. But the small number of buyers (at most there were one hundred thousand) makes a second market less liquid. Then the prices, at the time of any sale, are heavily discounted. Thus the banks abandon the sector and also small savers.
In table 1 you can see thetrend in the capitalization of listed funds in the last ten years. From just over two billion euros it drops to a few tens of millions. The twenty-five existing funds are closing and during 2024 this experience will run out.
But in 2006/2007 the fund instrument finds new strength as an unlisted product. It is placed with institutional investors (insurance, social security institutions) and the growth of the collection, see table 2, becomes impetuous.
Also the State and local authorities they are starting to use this tool which allows them to operate in the real estate sector in a fast and transparent way.
Il assets at the end of 2023 should exceed 110 billion of euros, with over six hundred active funds. Half of the asset allocation is in offices, the rest divided between commercial, residential, hotel and logistics.
In the twenty years of life of this instrument only a few small funds have been commissioned by the Bank of Italy. There were no criminal implications or scandals. Obviously positive and negative management results but this is part of the rules of the game. Ultimately a useful tool that has relaunched real estate in Italy and created a generation of managers and an important service industry.
