Alpha and Persistence in Real Estate Fund Performance

Abstract

In this paper we investigate whether fund managers investing in the direct real estate market can consistently maintain their performance. The question of whether the performance of fund managers persists over time has been the focus of a long line of research in financial economics. Surprisingly, despite its importance to property investors and fund managers, and the widely held view that real estate markets are inefficient, there has been comparatively little research on the extent to which real estate fund managers can systematically and persistently deliver superior risk-adjusted returns. The research that has been published has tended to focus on the performance of managers trading public real estate securities. Our study draws on a unique data set of commercial real estate funds collated by the Investment Property Databank (IPD) in the United Kingdom. The widespread finding is that very few managers appear to be able to maintain consistency in their performance rankings.