Written on 28 Jun 2021.
Real estate has become an essential part of institutional investment portfolios and is now established as a source of diversification and added value in the context of multi-class portfolio construction. A variety of real estate investment vehicles have been designed over time to match investors’ needs and provide solutions to the challenges that are typical of direct investing. The use of non-listed real estate collective investment schemes has been widely explored and analysed in academic and industry research but there is no published research focusing on French non-listed real estate vehicles to the notable exception of Schoeffler (2020).
The regulated French investment vehicle known as Société Civile de Placement Immobilier (SCPI) is of particular interest and more specifically the commercial SCPI market, which experienced double-digit growth over the last 10 years, with AUM almost quadrupling to reach EUR 67bn by the end of 2020.
Key findings of the report include the following:
SCPI RISK AND PERFORMANCE ANALYSIS
PORTFOLIO DIVERSIFICATION AND BENEFITS OF ALLOCATION
RELEVANT CANDIDATE ATTRIBUTES FOR SCPI SELECTION
The analysis covers eight SCPI attributes, and the authors identify three specific candidates that could help explain the cross-sectional differences in risk and return:
Although further research will be needed to formally validate the three candidates (including rigorous out-of-sample testing and analysis of SCPIs’ financial statements), current results indicate investor welfare could be enhanced via suitable SCPI selection decisions.
Overall, results suggest that value can be added by selection and allocation decisions, which could form the basis of a welfare-enhancing open architecture multi-management approach to investment in SCPIs.
Commenting on this research, Lionel Martellini, Director of EDHEC-Risk Institute, said, “Modern asset management tools can easily be applied to the real estate asset class. In particular, a multi-management approach on the SCPI market based on the right selection and allocation processes is likely to significantly improve the risk-return profile to the benefit of investors.”
Frédéric Bôl, Chief Executive Officer, Swiss Life Asset Managers France, underlined: “The collaboration between our respective research teams enabled us to adapt the tools developed in the context of financial asset management to the specific universe of non-listed real estate investment funds, and SCPIs in particular. The results of this research are directly operational with a view to improving the SCPI investment process both for individual savers and institutional investors.”
Commenting on this research, Béatrice Guedj, Head Research & Innovation at Swiss Life Asset Managers France, said, “Given the increasing appetite for SCPIs vehicles, a building block for a long term investment, both households and institutional investors should remember: firstly, risk-adjusted performance is driven by price return not by yield; secondly, selection on size, volatility and track record are relevant for an optimal allocation process. Thirdly, material diversification, as chased by both savers and investors, would be achieve through a portfolio of 10 SCPIs. The challenge is now to find the best route to efficiently implement such an open architecture multi-management solution for the benefits of all.”
Commenting on the results of the Paper, Shahyar Safaee, Research Engineer, EDHEC-Risk Institute: “The analysis of the risk-return profile of SCPIs reveals a diverse and heterogeneous universe of real estate investment funds where long-term performance dispersion, contrary to what one might think, is primarily due to differences in price returns rather than dividend yields. Such significant performance dispersion should encourage investors to implement an allocation process. In particular, we observe a decrease in the average risk of SCPI portfolios as their number of constituents increases, and the fact that as few as 10 SCPIs are sufficient to achieve significant diversification raises the question of selection. To this end, investors could look at observable and differentiating SCPI attributes such as size or past performance to build a value-adding selection process.”
A copy of the publication can be downloaded via the following link:
You can access the editorial – A Case Study in Real Asset Investing: the French Non-Listed Real Estate Fund Market – published in the April edition of EDHEC-Risk Institute quarterly newsletter.
This research was supported by Swiss Life Asset Managers France as part of EDHEC-Risk Institute’s “Real Estate in Modern Investment Solutions” research chair.
 Schoeffler, P. (2020). Liquidity of real estate funds available to the general public in France. Association française des Sociétés de Placement Immobilier (ASPIM).
 Our analysis focuses specifically on SCPIs invested in commercial real estate. They have the longest track record and represent 94% of the market in terms of assets under management (AUM).
 This study focuses on a representative set of 53 SCPI vehicles between 2003 and 2019. Data was kindly provided by the Institut de l’Epargne Immobilière et Foncière (IEIF).
 The average annual total returns over the sample period vary from 5.2% to 13.4%, a significant discrepancy over a 16-year horizon.
 With 53 constituents.