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.

Purpose The purpose of this paper is to investigate the effect of Alternative Investment Fund Managers Directive (AIFMD) on European private equity real estate (PERE) industry. Design/methodology/approach The paper draws upon a set of 12 semi-structured interviews with European PERE fund managers to explore their views on the reporting and risk management under the AIFMD, the costs and benefits associated with the AIFMD compliance and the effect of the AIFMD on European PERE industry. Findings A “one size fits all” approach adopted by the AIFMD results in difficulties in understanding and implementing the AIFMD requirements by PERE managers. Due to the limited applicability of the AIFMD risk reporting requirements to PERE funds, PERE managers have developed their own risk metrics, which they report internally. The formalization of risk management process and the separation of risk management function constitute the two most significant changes experienced by PERE managers. The managers recognize a positive branding effect from the authorization and improved risk awareness in their organizations due to the AIFMD. Research limitations/implications The current paper focuses on PERE fund managers and does not address other real estate funds falling under the AIFMD. Practical implications PERE fund managers require feedback and guidance from authorities and best practice recommendations from industry organizations to enable proper compliance. Industry-specific reporting requirements would benefit both the industry players and authorities. Originality/value Given the broad scope of the AIFMD, it is of interest to look at how PERE fund managers have adapted to the regulatory change.

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