Value Added from Money Managers in Private Markets? An Examination of Pension Fund Investments in Real Estate

Andonov, Aleksandar; Eichholtz, Piet; Kok, Nils

doi:10.2139/ssrn.1996819

Cited by 18 publications

(12 citation statements)

References 52 publications

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“…Private pensions in our sample have a mean (median) size of $8.0 billion ($1.9 billion) and public pensions in our sample have a mean (median) size of $13.5 billion ($2.5 billion). The average size of pension funds in our sample is comparable to the $13.3 billion figure reported in Andonov, Eichholtz, and Kok (2013).…”

Section: Datasupporting

confidence: 75%

“…However, despite focusing on the small sample of sophisticated (institutional) investors, we fail to find any evidence of FOFs outperforming hedge funds. 7 Our paper also contributes to the recent literature on the performance evaluation of institutional investors such as pension funds (Andonov, Bauer, and Cremers, 2012;and Andonov, Eichholtz, and Kok, 2013) and university endowment funds (Brown, Garlappi, and Tiu, 2010), and hiring and firing decisions of plan sponsors (Goyal and Wahal, 2008).…”

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confidence: 87%

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Institutional Investment and Intermediation in the Hedge Fund Industry

2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Institutional Investment and Intermediation in the Hedge Fund Industry AbstractUsing new data on the hedge fund investments of institutional investors, this paper is the first to examine the determinants and consequences of intermediation in the hedge fund industry. Our empirical analysis reveals several findings consistent with predictions from the theoretical literature. First, larger investors are more likely to invest directly with hedge funds instead of using intermediated channels. Second, institutions investing directly tend to outperform their intermediary-using counterparts. The inferior performance of institutions using intermediaries reflects: (i) worse performance on their few direct hedge fund investments and (ii) their larger allocation to funds of hedge funds that are known to perform worse than direct hedge fund investments. Taken together, these findings suggest an equilibrium in which larger institutions enjoy economies of scale, enabling direct investment into relatively better performing hedge funds. As institutional size and the number of hedge fund investments increase, the returns from direct investment do exhibit a decline, suggesting eventual scale diseconomies.3 Institutional Investment and Intermediation in the Hedge Fund IndustryLured by the promise of superior absolute returns and low correlation with traditional asset markets, a significant amount of investment in the hedge fund industry has been made in recent years by institutional investors, including pension funds, university endowments, foundations, and family offices. In their October 2012 report, Preqin estimates that 65% of the hedge fund assets now come from institutional investors, with public pension funds being the most prominent group of investors. 1 However, despite the growing body of academic research on hedge funds, there is little known about the investment experience of these institutional investors due to paucity of data. This paper provides the first study of institutional investment in the hedge fund industry. Specifically, it focuses on the choice between direct and intermediated investment through funds of hedge funds and on the advisory role of investment consultants.The paper employs new data from Preqin which provides information about the characteristics and hedge fund investments of institutional investors such as pension funds, university endowments, and foundations for 2010. The institutional characterist...

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Section: Datasupporting

confidence: 75%

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confidence: 87%

Institutional Investment and Intermediation in the Hedge Fund Industry

2013

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“…In section 4, we explain the methodology employed. The empirical results are discussed in section 5 and section 6 concludes with a discussion of policy implications, including the recent 3 Other papers studying pension fund performance using the CEM database are Bauer, Cremers and Frehen (2010), Dyck and Pomorski (2011) and Andonov, Eichholtz and Kok (2012). Our findings are in line with the predictions of Brown and Wilcox (2009) and Lucas and Zeldes (2009) that accounting rules for U.S. public pension funds create a perverse incentive to invest more in riskier assets in order to discount liabilities at a higher rate.…”

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confidence: 99%

Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?

2012

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We use an international pension fund database to compare the asset allocation and liability discount rates of public and non-public funds in the U.S., Canada and Europe. We document that U.S. public funds exploit the opaque incentives provided by their distinct regulatory environment and behave very differently from U.S. corporate funds and both public and non-public pension funds in Canada and Europe. In the past two decades, U.S. public funds uniquely increased their allocation to riskier investment strategies in order to maintain high discount rates and present lower liabilities, especially if their proportion of retired members increased more. In line with economic theory, all other groups of pension funds reduced their allocation to risky assets as they mature, and lowered discount rates as riskless interest rates declined. The arguably camouflaging and risky behavior of U.S. public pension plans seems driven by the conflict of interest between current and future stakeholders, and could result in significant costs to future workers and taxpayers.JEL classification: G11, G18, G23, H55.

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“…Finally, Andonov, Eichholtz and Kok (2012) analysed a database with pension fund allocations and costs. They showed that larger pension funds are more likely to invest in real estate internally, have lower costs and higher returns.…”

Section: The Inconvenient Truth About Feesmentioning

confidence: 99%

Uncovering Private Real Estate Fees

Spek¹

2013

Proceedings of the 20th Annual European Real Estate Society Conference - Vienna, Austria

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Value Added from Money Managers in Private Markets? An Examination of Pension Fund Investments in Real Estate

Cited by 18 publications

References 52 publications

Institutional Investment and Intermediation in the Hedge Fund Industry

Institutional Investment and Intermediation in the Hedge Fund Industry

Pension Fund Asset Allocation and Liability Discount Rates: Camouflage and Reckless Risk Taking by U.S. Public Plans?

Uncovering Private Real Estate Fees

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