Performance drivers of private real estate funds

Farrelly, Kieran; Stevenson, Simon

doi:10.1080/09599916.2016.1210333

Cited by 14 publications

(14 citation statements)

References 16 publications

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“…Ro & Ziobrowski (2011) conclude for the U.S. that specialized REITs do not outperform diversified REITs but have higher volatility. This contrasts with the aforementioned result of Farrelly & Stevenson (2016) for real estate funds. Chung, Fung, Shilling & Simmons-Mosley (2016) find that the implied volatility is negatively linked to current and future returns, but positively linked to future implied volatility, in the U.S. .…”

Section: Literature Reviewcontrasting

confidence: 54%

“…Tomperi (2010) finds that U.S. valueadded and opportunistic fund performance is positively linked to size and that emerging funds are more likely to produce high returns. Farrelly & Stevenson (2016) identify a negative influence of size and a positive effect of sector specialization, as opposed to sector diversification on U.S. value-added and opportunistic fund returns. In addition, total vintage year capital flows are negatively linked to performance and there is limited evidence that geographic focus can be detrimental.…”

Section: Literature Reviewmentioning

confidence: 99%

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Risk Factors of U.S. Real Estate Investments

Hoesli¹,

Delfim²

2017

24th Annual European Real Estate Society Conference

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This research focuses on macroeconomic risk factors pertaining to the various types of real estate exposure, i.e. direct, listed and non-listed investments. We apply panel model techniques which make it possible to take advantage of both the cross-sectional and time series dimensions of our data. Much emphasis is placed on comparing sensitivities to risk factors across the types of real estate exposure. This is important in order to assess whether indirect (listed and non-listed) exposures react in the same way as direct investments to the macroeconomy and how well such investments replicate direct real estate behavior. The empirical analyses are conducted using U.S. data from 1984Q1 to 2016Q2. Allocations both by sector and geography are considered. For indirect exposures, we also control among other things for size and leverage. The various types of real estate exposure generally respond similarly to risk factors with GDP, money supply, construction costs, expected inflation, and expected economic activity positively impact returns, while the term and credit spreads, unemployment, and unexpected inflation negatively affect returns.

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Section: Literature Reviewcontrasting

confidence: 54%

Section: Literature Reviewmentioning

confidence: 99%

Risk Factors of U.S. Real Estate Investments

Hoesli¹,

Delfim²

2017

24th Annual European Real Estate Society Conference

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“…Existing evidence by Fuerst and Matysiak (2013) and Delfim and Hoesli (2016) shows that fund-specific characteristics such as investment style, vintage and size affect PERE returns, thus indicating that persistence in non-risk-adjusted performance cannot be readily taken as an evidence of managerial skill. Farrelly and Stevenson (2016), on the contrary, find that fund characteristics have little statistically significant effect on fund performance, however, they conjecture that performance is rather driven by exact real estate investment decisions, which, based on the above examples, is also related to the skill of the GP. Focusing on the effect of investment style on performance, Fisher and Hartzell (2016) demonstrate that there is no difference in performance between value-add and core PERE funds, while combined together they outperformed core assets in the ODCE index during the time period of 1980-2003 and under-performed it in the 2004-2008 vintages. This paper contributes to the understanding of managerial skill of PERE GPs in two respects.…”

Section: Introductionmentioning

confidence: 90%

“…To preserve the sample size, we treat valuations of unliquidated funds as final cash flows as in Kaplan and Schoar (2005) and Kiehelä and Falkenbach (2015). Our performance measure is internal rate of return (IRR), as it is most commonly used by investors to evaluate PERE fund performance and by managers to determine performance fees 3 (Farrelly and Stevenson 2016;Van der Spek 2017).…”

Section: Abnormal Returnsmentioning

confidence: 99%

“…We also control for vintage year fixed effects in order to control for the differences in market conditions affecting fund performance. We do not control for the property type, as this descriptive is missing for Burgiss data, which accounts for 39% of funds in our sample, however, as shown by Farrelly and Stevenson (2016) and Delfim and Hoesli (2016), property-type specialization has no statistically significant relationship with private real estate fund performance. We therefore estimate the following model to obtain a prediction of return driven by fund risk profile:…”

Section: Abnormal Returnsmentioning

confidence: 99%

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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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