By the Industry, For the Industry – October 16, 2023
The National Council of Real Estate Investment Fiduciaries (NCREIF) and the CRE Finance Council (CREFC) have just released their second-quarter NCREIF/CREFC Open-End Debt Fund Aggregate: Consultation Edition. If you haven’t heard of it previously, that’s because unlike NCREIF’s benchmark indices, the Open-End Debt Fund Aggregate isn’t yet formally implemented.
“The report will be issued in a draft ‘consultation’ format for at least one year with the goal of obtaining industry feedback to be incorporated before it is introduced as an official industry product,” the two groups said in a joint announcement.
When the inaugural report for Q1 was issued in early August, NCREIF and CREFC said it would deliver “a fund-level compilation of open-end debt funds providing financing to commercial and multifamily real estate borrowers/owners … NCREIF and CREFC believe the Debt Aggregate will enhance investors’ interest & understanding of the rewards and risks of private real estate open-end debt funds, which may lead to increased allocations to debt, in turn benefiting managers, investors, and commercial real estate finance industry professionals.”
The Debt Aggregate currently consists of 15 funds from 13 managers that operate open-end debt funds, with manager self-reported styles including core, core-plus and value-add. As a result, NCREIF and CREFC say, the Debt Aggregate isn’t an index or a benchmark, but more like a research tool to enhance and encourage transparency and understanding of debt as an investment.
For inclusion in the Debt Aggregate, investment managers must:
- Offer an open-end fund product to institutional investors that operate as debt providers for predominantly private U.S. commercial real estate,
- Calculate quarterly net asset values and time-weighted returns on a market-value basis,
- Agree to submit all requested data and do so within the time frame required, and
- Be an NCREIF data contributing member once the Debt Aggregate becomes an official product.
The performance metric is a time-weighted return. The returns from each fund are equally weighted across the funds since the aggregate contains a few large funds that would dominate the results if they were value weighted.
NCREIF and CREFC said they view their multi-year collaboration as “a project by the industry and for the industry.” It has been in the works since 2018, with input from the data-contributing managers, investors and consultants.
The current iteration of the Debt Aggregate represents the first phase of its development. Phase II development will include specific style benchmarks that establish definitions and parameters for core, core-plus and value-add.
In connection with this, NCREIF and CREFC are working closely with the NCREIF/PREA (Pension Real Estate Association) Reporting Standards. This set of standards, the two groups say, “has successfully brought standardization and transparency to the institutional private equity real estate industry and includes debt funds.”