Earlier this week, Land Securities, the UK's largest listed property company, announced plans to return ý500m to shareholders, while Green Property announced it is in talks that may take the company private.

And this comes after more than ý4bn has been withdrawn from quoted property companies over the past two years.

It would be easy enough to conclude that investors do not like property.

But it would also be a mistake.

According to a new report prepared by analysts at Investment Property Databank and sponsored by investment bank ABN Amro, investors are charging into real estate like never before.

But now they are choosing to invest in private, unquoted real estate funds rather than either equities or through the direct market. In the three years to December 2001, investment in European real estate funds more than quadrupled from €6bn (ý4.09bn) to €28bn, a compound annualised growth rate of 66 per cent.

The report, which analyses the performance of 88 UK partnerships and unit trusts and 15 continental European investment vehicles, paints a mixed picture of the merits of unlisted investment vehicles.

By some key measures, managers of funds come off poorly. Ungeared standing investments in limited partnerships measured by IPD underperformed the IPD universe by 0.4 per cent annualised over the three years to December 2001, and in no one year did the funds outperform. When it came to stock selection, fund managers added no value, but instead, subtracted some.

And property trading and development - the factor that added 0.2 percentage points of return to the IPD universe in 2001 - marginally lowered returns for the fund managers in that year.

The report cautions against reading too much into these last figures. Given the immaturity of many of the schemes, developments are likely to be in very early stages.

The one area where the fund managers were really able to deliver outperformance relative to the IPD universe came when gearing was taken into account.

If looked at over the past three years, gearing added an annualised 2.1 percentage points of return.

A quick conclusion might be that the fund managers are really only good at one thing: borrowing money.

But even then, the report suggests, they are rather timid about that, too.

The data for 2001, for instance, is based on a sample of 25 partnerships with a combined value of ý4bn, of which 13 had no debt last year.

Of those with debt, the average gearing level was 35.2 per cent at year-end.

There are wild deviations between the performance of the best and the worst fund managers in any given year.

In 2001, for instance, the best manager in the survey - none are identified by name - pulled in returns of 20 per cent. The worst, on the other hand, had returns of minus 7 per cent.

When it comes to property types, the strengths and weaknesses of fund managers really come to light. While those managing retail funds generally outperformed the IPD retail index - and did particularly well in achieving outperformance of shopping centres and standard retails - they were abysmal at retail warehouses. Managers of this last category of funds underperformed the IPD universe by 6.7 per cent.

No votes of confidence are to be found there.

However, in trying to understand why capital is flowing into these funds with such speed, it is necessary to look not just at performance relative to the IPD universe, but to the quoted sector. And although these partnerships and funds underperformed IPD, they outperformed the FTSE real estate shares total return index by a similar margin.

In other words, for all their weaknesses, they are still better vehicles for investment than what is available, on average, in the quoted sector.

'What is really driving the growth of these funds are push-factors and pull-factors,' said Phillip Rose, European Head of Real Estate at ABN Amro.

The factors pulling people out of quoted property equities or direct real estate ownership are, first, a desire to outsource management to specialists; second, investors - particularly pension funds - want access to the benefits of gearing; third, investors want to focus on individual sectors and choose managements who are specialists in key product types; and fourth, they want access to large lot sizes.

The shift in the way capital is allocated to real estate has not escaped the attention of property company managements.

Those who believe they have specialist expertise to offer are setting up funds and seeking third party investors, managing these assets with their own.

Indeed, so attractive does this drive to seek specialist fund management appear that a group of dissident investors at British Land have requested that investors be allowed to vote on converting the company to just such a vehicle, bringing in specialist asset managers from the outside.

According to the ABN Amro/IPD study, some 27 per cent of fund managers are quoted property companies and a further 7 per cent are unquoted property companies.

'This industry has been significantly sponsored by property companies who are emerging as stakeholders,' Mr Rose says. 'It is an issue for the new capital model which is emerging.'

Financial Times