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Similarly, the ANREV / INREV / NCREIF Fund Manager Survey 2022 demonstrates a year of increased investor appetite for the segment, with assets under management (AUM) by funds of funds surging to a record high of €52.6 billion. Both studies showcase the benefits of scale and diversification that funds of funds offer.

The performance of funds of funds improved significantly last year, with returns growing to the highest level since the study began 15 years ago. As a group, funds of funds achieved a total return of 12.4% 1 in 2021, compared to 1.7% in 2020, driven by the industry's post-pandemic recovery.

A similar picture also emerges when assessing the distribution in performance of individual funds of funds. 2021 saw an increased spread upwards as several funds of funds reported exceptionally strong performance, when even the 10th percentile was the highest in the study's history and in the positive territory.

Continued growth of global strategies

When looking at targeted regions, funds of funds with a global strategy account for the largest share of the ANREV / INREV Funds of Funds Vehicle Universe, representing 77% of the total by number, and 95% of the total NAV. This is followed by funds of funds with a European investment strategy, representing 23% of the Universe, however only accounting for 5% of the total NAV.

Funds of funds with global strategies also delivered their twelfth consecutive year of positive returns. The total return increased to 12.6% compared to 1.5% in 2020, while funds of funds targeting Europe delivered 7.5%, compared to 3.9% in 2020.

Core style funds of funds dominate

Funds of funds with a core investment style account for over half (59%) of the Universe by number, and 96% of total NAV. The remainder of the ANREV / INREV Funds of Funds Vehicle Universe is split between six value added and three opportunity funds of funds, accounting for 4% of total NAV. On average, funds of funds following a core strategy are the largest in size with a total NAV of €1.7 billion. However, the three largest core style funds of funds average €6.0 billion of NAV, collectively representing 79% of the Universe's total NAV.

In comparison, value added style funds of funds account for only 3% of the total NAV, with an average of €127 million per vehicle. Funds of funds with an opportunistic investment style are the minority, accounting for the remaining 1%, with an average NAV of €92 million per vehicle.

When looking at performance, there is a strong correlation over time, with core strategies outperforming non-core strategies in most instances. However, in 2021 non-core funds of funds outperformed core funds of funds, with total returns of 14.4% and 12.3%, respectively. Regardless, both core and non-core funds of funds saw a substantial improvement in performance last year. For core funds the total return increased from 2.0% in 2020, while non-core funds saw a substantial uptick from -3.1% in 2020.

Increased intentions

There were further positive notes of sentiment according to the ANREV / INREV / PREA Investment Intentions Survey 2022. The share of investors targeting Europe and expecting to raise their current allocation to funds of funds over the next two years increased to 7.0%, compared to just 1.7% in 2021, while the percentage of those expecting to decrease their allocations declined from 6.7% in last year's survey to 5.6% this year.

Iryna Pylypchuk?€?, INREV's Director of Research and Market Information, said: 'Over the last year, the consolidation of the industry has continued, with significant growth of a few large, core style funds of funds. This growth has been spurred on by investors seeking benefits of scale and diversification, and we see that reflected in the growing number of funds of funds with a global strategy. While the 2021 performance impressed on the upside, given the rapid shift in the economic and macro-outlooks, the focus for 2022 is likely to be pivoted around diversification and balancing out potential market volatility. In this respect, the diversified nature of the segment may well support a further increase in allocations to funds of funds, but to what extent that will be executed in the very short term remains to be seen.'