Size Signals Success: <i>Evidence from Real Estate Private Equity</i>

Krautz, Sebastian; Fuerst, Franz

doi:10.3905/jpm.2015.41.6.073

Cited by 8 publications

(3 citation statements)

References 13 publications

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“…While there has been recent real estate research regarding NREF issues such as performance analysis, drivers, style, risk factors and general portfolio issues (e.g. Anderson et al, 2016;Arnold et al, 2021;Delfim and Hoesli, 2016;Fairchild et al, 2011;Fuerst and Matysiak, 2013;Fuerst et al, 2021;Krautz and Fuerst, 2015), there has been limited real estate research regarding real estate investment style, either at the real estate fund or real estate asset level. This has included assessing performance and strategic issues regarding value-add and opportunity real estate funds and real estate (e.g.…”

Section: Literature Reviewmentioning

confidence: 99%

The performance of non-listed opportunity real estate funds in China

Newell

Marzuki²,

Hoesli³

et al. 2023

JPIF

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PurposeOpportunity real estate funds are an important style of real estate investing for institutional investors seeking nonlisted real estate exposure. Importantly, institutional investors have sought exposure to the China real estate market, often via opportunity real estate funds. This has been by a pure China opportunity real estate fund (100% China opportunity real estate) or by a pan-Asia opportunity real estate fund where China opportunity real estate was part of this pan-Asia opportunity real estate portfolio. Using two bespoke China opportunity real estate indices developed by the authors, this paper aims to assess the risk-adjusted performance and portfolio diversification benefits of China opportunity real estate in a mixed-asset portfolio over 2008–2020. It also highlights critical issues for institutional investors going forward to factor into their real estate investment decision-making for effective China real estate exposure.Design/methodology/approachThis paper develops two bespoke China opportunity real estate fund performance indices to assess the risk-adjusted performance and portfolio diversification benefits of China opportunity real estate funds in a mixed-asset portfolio over 2008–2020. An asset allocation diagram is used to assess the role of China opportunity real estate in a mixed-asset portfolio via both the non-listed and listed real estate investment channels.FindingsOver 2008–2020, China opportunity real estate exposure via pan-Asia opportunity real estate funds were seen to outperform pure China opportunity real estate funds. In both formats, China opportunity real estate funds were seen to have a significant role in a China mixed-asset portfolio across most of the portfolio risk spectrum; particularly compared to listed real estate exposure in China. On-going issues regarding real estate risk management in China will take on increased importance for institutional investors seeking China real estate exposure.Practical implicationsOpportunity real estate funds are an important style of real estate investing, often used by institutional investors to gain non-listed real estate exposure in a developing real estate market. This style of real estate investing has been popular with institutional investors seeking exposure to China real estate as part of the China economic growth dynamic. The results of this research highlight the importance of opportunity real estate investing in China, both via a pure China opportunity real estate fund and via a pan-Asia opportunity real estate fund. Based on this empirical analysis, China opportunity real estate exposure is seen to be more effective via a pan-Asia opportunity real estate fund than a 100% China opportunity real estate fund. A range of practical China real estate investment issues are also highlighted for the effective delivery of China real estate exposure for institutional investors going forward; this particularly relates to the on-going risk management for real estate investment in China.Originality/valueThis paper is the first empirical research analysis of the risk-adjusted performance of China opportunity real estate and its role in a mixed-asset portfolio. Using bespoke China opportunity real estate fund indices developed by the authors, this research enables empirically-validated, more informed and practical opportunity real estate investment decision-making regarding the strategic role of China opportunity real estate in an institutional investor's portfolio. It also highlights the importance of various facets of real estate risk management in China going forward.

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Section: Literature Reviewmentioning

confidence: 99%

The performance of non-listed opportunity real estate funds in China

Newell

Marzuki²,

Hoesli³

et al. 2023

JPIF

View full text Add to dashboard Cite

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“…More broadly, there have been a number of important studies providing crucial information on the performance and characteristics of non-core real estate funds, especially since it has been established that investment style provides significant explanatory power over their performance Hoesli 2016, 2019). These studies have mainly focused on US and Europe non-listed real estate funds, (including Anderson et al 2016;Bollinger and Pagliari 2019;Fisher and Hartzell 2016;Fuerst and Matysiak 2013;Gang et al 2020;Hahn et al 2005;Kiehelä and Falkenbach 2015;Krautz and Fuerst 2015;Morri et al 2021;Pagliari 2020;Shilling and Wurtzebach 2012;Xing et al 2010), with a number of these papers drilling into specifics around non-listed real estate fund style, particularly non-core. The general research consensus is that non-core funds (i.e., value-add funds, opportunity funds) gave no discernible performance advantage over their core counterparts, plausibly due to higher fees, lesser effective management of funds (Bollinger and Pagliari 2019), and excessive exposure to leverage (Morri et al 2021;Pagliari 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

The Performance and Diversification Potential of Non-Listed Value-Add Real Estate Funds in Japan

Hoesli

Newell

Marzuki

et al. 2022

JRFM

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In the aftermath of the COVID-19 pandemic, non-core investments are gaining traction amongst institutional investors due to the shifting preference towards investment vehicles that position higher on the risk–return curve. Non-listed value-add real estate funds in Japan are one such vehicle. This research develops a comprehensive bespoke benchmark total return index using the ANREV database to reflect the performance of Japan-focussed non-listed value-add real estate funds. We compare the performance of such funds with that of other asset classes and perform portfolio and regression analyses. We conclude that there are several advantages to investing in those funds, including: (1) strong absolute total return performance, (2) competitive risk-adjusted performance, and (3) significant portfolio diversification potential in a mixed-asset portfolio context. The strategic implications for real estate investors are also assessed.

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“…To our knowledge, no existing study has focused on LP reinvestment decisions in PERE. Investigating a related topic, Krautz and Fuerst (2015) studied how GP centrality and fund size affect the speed of raising a follow-on fund. They demonstrate that better connected managers are on average quicker in raising capital for their follow-on funds, however, this effect is overtaken by the size of previous fund and the fund manager's total amount of capital under management in the full specification.…”

Section: Literaturementioning

confidence: 99%

Managerial Skill and European PERE Fund Performance

Sleptcova

Falkenbach

2020

J Real Estate Finan Econ

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Institutional investors often select private equity real estate (PERE) funds based on the belief that some of the managers possess skill. In this paper, we study skill of PERE general partners (GPs) from two perspectives: performance persistence and limited partner (LP) reinvestment. We first risk-adjust fund returns by controlling for fund characteristics and obtain abnormal returns that are driven by managerial skill. We then use pooled OLS and probit regressions on abnormal returns to show that managerial performance persists in our sample, and that skilled managers continue to deliver winning risk-adjusted performance, while for mediocre managers performance does not persist in terms of neither performance correlation nor probability of repeating performance. We also provide evidence that LP reinvestment can serve as a signal of skill, as reinvested funds perform better than non-reinvested ones. This positive effect of reinvestment also applies to the predecessor loser and non-winner funds, suggesting that poor performance does not always indicate the lack of skill, but can be a result of random events.

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Size Signals Success: Evidence from Real Estate Private Equity

Cited by 8 publications

References 13 publications

The performance of non-listed opportunity real estate funds in China

The performance of non-listed opportunity real estate funds in China

The Performance and Diversification Potential of Non-Listed Value-Add Real Estate Funds in Japan

Managerial Skill and European PERE Fund Performance

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