Accent - Buildings - Wide

A recent article in the Journal of Portfolio Management delivered important findings for investors who maintain an allocation to real assets. Researchers Thomas R. Arnold, David C. Ling, and Andy Naranjo found that closed-end private equity real estate (PERE) funds underperformed listed real estate investment trusts (REITs).1 Given the liquidity premium and other factors, many allocators have assumed the opposite is true.

The performance advantage held by listed real estate and documented by Arnold et al. is not altogether surprising, given the maturation of the public REIT market over the past 30 years. And it is one more reason institutional investors are considering increasing their allocations to listed real estate, which we explore further in this piece.

Read the Paper

1 Arnold, T., Ling, D., and Naranjo, A. (2021). Private Equity Real Estate Fund Performance: A Comparison to REITs and Open-End Core Funds. The Journal of Portfolio Management Special Real Estate Issue 2021, 47 (10), 107- 126. DOI: Given the differences in performance reporting as well as performance calculation methodologies in use for PEREs versus REITs, detailed information on the methodologies used and assumptions made by the researchers to derive the comparison are contained in the article. In addition to this information, note that PERE results are net of management fees while index returns used to represent REIT returns are gross of investment management fees. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in connection with an account.

This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities. Forward-looking statements are necessarily speculative in nature. It can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes.

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