The effects of management structure on the performance of listed property trusts

Abstract

As originally envisioned, LPTs were to be passive investment vehicles and were mainly managed by external managers. However, with more LPTs adopting an internally managed structure, the capitalisation of internally managed LPTs has increased from less than 8% of the total LPT market value in June 1997 to over 33% in December 2003. The risk-adjusted performance analysis has shown that internally managed structures outperform externally managed structures, and the larger LPTs also outperform their smaller counterparts. Mixed-asset portfolio analysis has provided further evidence for the dominance of the internally managed structure over the externally managed structure. The survey of internal LPT managers has offered some explanations to the outperformance of the internally managed structure.As originally envisioned, LPTs were to be passive investment vehicles and were mainly managed by external managers. However, with more LPTs adopting an internally managed structure, the capitalisation of internally managed LPTs has increased from less than 8% of the total LPT market value in June 1997 to over 33% in December 2003. The risk-adjusted performance analysis has shown that internally managed structures outperform externally managed structures, and the larger LPTs also outperform their smaller counterparts. Mixed-asset portfolio analysis has provided further evidence for the dominance of the internally managed structure over the externally managed structure. The survey of internal LPT managers has offered some explanations to the outperformance of the internally managed structure.