Private Equity Real Estate Research Articles

부동산 집합투자기구의 자산 매각시점에 영향을 미치는 요인분석

This study analyzed the factors affecting the successful sale of real estate by private equity funds. In particular, it was examined through a comparison between the group in which the real estate, which is an operating property, was successfully sold and the group that was not. Previous previous studies focused on the correlation between major economic indicators and the return of real estate funds for the entire duration of real estate funds. However, this study is meaningful in that it attempted to analyze the rate of change in major economic indicators during the actual sale period. As a result of the analysis, it was significantly confirmed that the successful sale of private equity funds was a negative relationship with the level of corporate bond issuance rates, and a negative relationship with the increase in the industrial production index and the bank loan delinquency rate. On the other hand, the housing sales index in Seoul was limited, but it was confirmed that it was a positive relationship. Through this relationship analysis, collective investment businesses that operate private equity real estate funds can devise a timing of sale that can maximize sales profits. In addition, investors are expected to be meaningful to stakeholders, such as being able to use it as a decision-making indicator for the timing of the sale of property by real estate funds.

Persistently Poor Performance in Private Equity Real Estate

Persistently Poor Performance in Private Equity Real Estate

Investor Cliques and Superior Fund Performance in Less Efficient Markets: An Examination of Private Equity Real Estate Funds

Investor Cliques and Superior Fund Performance in Less Efficient Markets: An Examination of Private Equity Real Estate Funds

Comparative Analysis: Influence of Interest Rates on Returns of Real Estate Private Equity Index and Real Estate Public Equity Index

Abstract In this paper, we studied the influence of interest rates on a US-based real estate private equity index as well US Wilshire public equity REIT Index. The interest rates that are chosen as independent variables include Monthly LIBOR, Yearly LIBOR and the Federal Cost of Funds Index. The dependent variables include US-based real estate private equity index that includes quarterly returns of 1,035 real estate funds, including liquidated funds formed between 1986 and 2018. The other dependent variable is the US Wilshire REIT Index. The variance of returns of interest rates considerably influences the variance of returns of the US PERE Index, whereas variance of returns of interest rates doesn’t influence the variance of returns of the US Wilshire REIT Index. Also, the real estate index is positively correlated to interest rates and so rising interest rates influence the returns of US PERE Index in a positive manner. The study shows that private equity real estate investors should expect higher return as the cost of funds increase.

Sustainability and Private Equity Real Estate Returns

Sustainability and Private Equity Real Estate Returns

Practical Applications of Portfolio Upside and Downside Risk—Both Matter!

Performance measurement for private equity real estate is quite different from that for public equity. One noticeable difference is how values and return performance are calculated and compared across assets. One of the many reasons for creating the NCREIF property index was to help private equity real estate investors produce accurate return attribution. In <b><i>Portfolio Upside and Downside Risk—Both Matter!</i></b>, from the 2021 special real estate issue of <b><i>The Journal of Portfolio Management</i></b>, authors <b>Jeffrey Fisher</b> (<b>Indiana University Kelley School of Business</b>) and <b>Joseph D’Alessandro</b> (<b>National Council of Real Estate Investment Fiduciaries</b>) contend that “traditional performance measures do not distinguish between upside risk and downside risk. Downside risk is based on returns that are below a target rate, below zero, below average, or below a benchmark and vice versa for upside risk.” Fisher and D’Alessandro also admit that academic literature contains research on the analysis of public market securities that introduces the differences between upside and downside risk measures. However, these have yet to be applied to private equity real estate research. Their article helps remedy the situation by employing downside risk measures and applying them to different property sectors and geographical areas within the NCREIF Property Index (NPI).

Private Funds for Ordinary People: Fees, Flows, and Performance

AbstractWe study private funds available to retail investors of modest wealth. Our sample covers unlisted real estate investment trusts (REITs) for superior cash flow and fee data. Fee structures are skewed toward performance-insensitive components of the compensation contract, particularly front-end loads. The average unlisted REIT underperforms the listed benchmark by 6.5% per year, 5% of which is attributable to fees. Unlisted REITs underperform institutional-grade private equity real estate funds. Fees paid to investment advisors also explain fundraising success, while past performance does not. The underperformance is consistent with the consequences of managerial conflicts of interest, inadequate governance mechanisms, opaque disclosure, and poor investment advice.

Leverage in Private Equity Real Estate

Leverage in Private Equity Real Estate

Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds

1. Thomas R. Arnold 1. is a visiting scholar in the Warrington College of Business at the University of Florida in Gainesville, FL. (tra622{at}ufl.edu) 2. David C. Ling 1. is the McGurn Professor of Real Estate in the Warrington College of Business at the University of Florida in Gainesville, FL. (ling{at}ufl.edu) 3. Andy Naranjo 1. is the John B. Hall Professor of Finance & Chairman in the Warrington College of Business at the University of Florida in Gainesville, FL. (andy.naranjo{at}warrington.ufl.edu) <!-- --> 1. To order reprints of this article, please contact David Rowe at d.rowe{at}pageantmedia.com or 646-891-2157. We provide a comprehensive examination of the return performance of closed-end, private equity real estate (PERE) funds relative to the performance of listed real estate stocks (real estate investment trusts [REITs]) and the NCREIF ODCE fund index. We first match each PERE fund in our sample and its realized internal rate of return and equity multiple with the return that would have been earned by an LP investor on an investment in the designated benchmark over each fund’s investment horizon. Overall, we find that closed-end PERE funds have underperformed listed REITs. In contrast, we find similar overall performance between PERE and the NCREIF ODCE fund index. We also examine the determinants of the relative performance spread between the PERE funds and the equity REIT index and find that the spread widens with interest rate environment variables (Treasury yields and default spreads) and narrows with broad macroeconomic performance indicators (growth rate of GDP). Key Findings

Portfolio Upside and Downside Risk—Both Matter!

Traditional performance measures do not distinguish between <i>upside risk</i> and <i>downside risk</i>. Downside risk is based on returns that are below a target rate, below zero, below average, or below a benchmark, and vice versa for upside risk. Downside risk measures and the “duality” of beta have been discussed extensively in literature related to public markets but have not been applied to the analysis of private equity real estate in the academic literature. This article examines the measures that can distinguish between upside and downside risk that are commonly used in public markets, such as upside and downside beta and the Sortino ratio for downside analysis, and applies them to different property sectors and Core-Based Statistical Areas in the NCREIF Property Index. In addition, these measures are used to analyze gateway versus nongateway markets’ historical performance on both an upside and downside risk basis. The same techniques are applied to perform an attribution analysis of a portfolio’s alpha into upside and downside components. <b>Key Findings</b> ▪ The authors show that downside risk measures such as the Sortino ratio and downside beta can provide insights into what drives returns for different property sectors and Core-Based Statistical Areas, as well as gateway versus nongateway markets. ▪ Using the upside to downside beta ratio, the authors show how property sectors and markets vary as to whether beta is magnifying return on the upside and/or minimizing declines on the downside. ▪ By using the duality of beta, the authors show how to decompose the risk-adjusted overperformance or underperformance into upside and downside alpha earned by a portfolio, a complement to traditional Brinson attribution analysis.

Performance determinants of European private equity real estate funds

PurposeThe paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014.Design/methodology/approachUsing a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship.FindingsThe findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles.Practical implicationsThe practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori.Originality/valueEven if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

Asymmetric political attention across foreign and domestic private equity real estate investors

ABSTRACT Private equity real estate (PERE) markets suffer from information inefficiency. In this study, we examine if Google Trends could help in partially mitigating the inefficiency issues. Using monthly PERE investment activities in India between 2005 and 2017, and controlling for macroeconomic variables, we show that relevant search trends are significantly associated with future investment activities. Compared to domestic investors, foreign investors are subject to information asymmetry and their investment activity is particularly sensitive to political search trends in the target country. We detect a mutually causal association between investment activity and political searches. Although significant, the effect of political Google Trends on investment activity is short-lived and fades within two months.

Deciphering Private Equity Incentive Contracting and Fund Leverage Choice

I explain the standard carried interest contract as a mechanism to induce incentive compatible fund leverage while also satisfying LP return objectives. Fee, leverage and target return data from private equity real estate (PERE) funds are used to calibrate the model. Steps in the modeling process include developing a tradeoff model of fund capital structure that pits alpha against the costs of financial distress. Financial distress costs are shown to create endogenous upper bounds on fund debt levels. GPs with convex incentive fee payoff functions limit debt, even in the absence of distress costs. I also analyze how catch-up fee provisions arise endogenously to generate larger fees for high-skill fund managers.

Performance and Persistence in Private Equity Infrastructure Funds

Research on infrastructure as an asset class is still in its infancy due to the lack of data. Investors have approached the performance evaluation of infrastructure deals from the lens of either real estate or private equity. We use fund-level cash flow data to construct three performance metrics: the internal rate of return (IRR), the public market equivalent (PME) and the total value to paid-in capital (TVPI) and assess the performance drivers of private infrastructure funds. Our results highlight that private infrastructure funds exhibit a different performance pattern to mainstream private equity funds and to real estate private equity. Performance determinants such as fund size, investment style, fund specialisation, sector, location do not seem to explain the cross-section in performance indicators. All else equal, oversubscribed funds deliver a worse performance. Results for persistence across follow-on funds are inconclusive and we find mild momentum effects. Our results have implications for investors in real assets and less transparent markets. Overall, the private infrastructure fund sector is still in its infancy and conventional wisdom from general private equity or real estate research may not yet apply to infrastructure funds.

Pension Funds and Private Equity Real Estate: History, Performance, Pathologies, Risks

I study the history and performance of commercial real estate (CRE) in the pension fund portfolio, showing how many plan sponsors fundamentally changed their approach to CRE investment once underfunding gaps began to emerge in the early and middle 2000s. Several new empirical facts are presented, including pension fund share ownership estimates of private equity real estate (PERE) in excess of 50%, reconfirmation of underperformance of Value-add and Opportunity PERE funds, and the apparent existence of an illiquidity price premium paid by pension funds for the “volatility veil” that PERE fund investment provides. Three types of concentration risks are identified, including high geographical ownership concentrations. The risks that pension funds and their investment in PERE funds pose to economic and financial stability have been exacerbated by the negative aftershocks of the COVID-19 pandemic.

Managerial Skill and European PERE Fund Performance

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.

Private Equity Real Estate Funds: Returns, Risk Exposures, and Persistence

Using performance data through the fourth quarter of 2017 on 467 funds that came to market between 2000 and 2013, the authors of this article first examine the unconditional performance of closed-end, private equity real estate (PERE) funds over time and across various fund characteristics. The performance metrics they use are the internal rate of return, the multiple on invested capital, and a proxy for the public market equivalent. Using conditional sorts, as well as regression procedures with asset pricing specifications, the authors estimate the exposure of PERE performance to fund-level characteristics and macroeconomic environment risk factors and find that both significantly affect PERE performance. More specifically, they find that PERE performance is positively related to fund size, gross domestic product growth changes, private market real estate returns, interest rate changes, and default spread changes and is negatively related to vintage volume. International funds dramatically underperformed relative to domestic funds during the sample period. The authors also find that fund performance is positively associated with the performance of prior funds raised by the same PERE firm. <b>TOPICS:</b>Real estate, statistical methods, risk management, private equity <b>Key Findings</b> • Fund characteristics, market risks, and macroeconomic risk factors significantly predict PERE performance. • Fund performance is positively associated with the performance of prior funds raised by the same PERE sponsor. • Fund performance is negatively associated with vintage volume.

The risk and return of private equity real estate funds

This study employs an asset pricing approach to quantify the exposure of private real estate funds to both private and publicly traded real estate risk factors. The analysis includes the creation of specific performance indices and the use of methods seeking to address some of the inherent issues with private real estate fund data, such as the high degree of serial correlation in observed total returns. The use of the Driessen et al. (2012) estimator leads to markedly higher risk factor coefficient estimates than seen in the prior literature and estimated with time series regression.

Real Estate: The Case for Investment in Private and Listed Real Estate

Executive Summary. Our analysis of long-term trends points to the outperformance of listed REIT stocks and private equity real estate opportunistic funds compared to more traditional asset. To explain these results, we appeal to Merton (1973) and Fama's (1996) multifactor mean-variance efficient portfolio theory, where the asset weights for these portfolios are those that produce the market portfolio and an extra multifactor-efficient portfolio that performs well in a low equilibrium rate environment. Researchers have found that private and listed real estate performs well as a diversifier in a stock and bond portfolio. However, mean-variance portfolio theory does not provide a unified account of the outperformance of private and listed real estate over the past two and a half decades. A multifactor-minimum variance model is necessary, which introduces the issue of hedging and of tailoring portfolios to mitigate potential vulnerability to a low equilibrium rate environment. We find that investors should add a mimicking portfolio to mitigate their potential vulnerability to a low equilibrium rate environment, and that this portfolio should consist primarily of private and listed real estate.

How Big of a Lemons Market is the Secondary Market for Private Equity Real Estate Limited Partnerships?

We find that shares of real estate limited partnerships sell at substantial discounts to net asset values (NAV) and these discounts are influenced by factors associated with agency costs and unrealized gains. Our study builds on previous work by Barber (1996) by examining a much longer time period (1994-2013), including additional control variables, and utilizing Tobit estimation instead of OLS, which we find superior. We find much larger effects of unrealized capital gains than Barber (1996). Factors that reduce fund managers’ freedom to take actions that might reduce shareholder returns such as leverage and high dividend payments reduce discounts.