Real estate, alternative real assets and other diversions

Consilia Capital Real Assets Fund Monitor Listed RE Pension Fund Performance

The Fund Manager

This monthly report from Consilia Capital on fund performance looks at a number of different topics.

August performance  – which strategies performed best?

Global real estate securities funds returns August 2018

Source: Consilia Capital/Bloomberg

As can be seen from the table below, (which is ranked by average August returns for each main mandate) August saw a modest recovery (after a dreadful 1H 18) particularly for US and Income Funds, which have now joined European Funds in generating positive returns for the year to date. 

Source: Consilia Capital/Bloomberg

Fund Flows- What are the trends?

After an uptick in inflows in August for Passive Funds, this reversed back to the negative trend YTD in August. Income and Real assets funds have had a third successive month of inflows. 

Listed and Unlisted Real Estate Performance in European Pension Funds  

Although there is no shortage of academic studies on listed real estate performance, there is a shortage of papers focussed on actual fund data, performance and allocations. This month we summarise a report on this topic produced by CEM Benchmarking, and commissioned by EPRA. The report focusses on:

  1. Asset allocation

Dutch funds allocate 8 percent to real estate on average, split 25/75 between listed and unlisted real estate. U.K and Other Euro area funds allocate just over 5 percent to real estate on average, nearly all of it unlisted.

Trends Dutch funds are de-risking, reducing allocations to equities and real estate while increasing allocations to fixed income. U.K. funds are doing the opposite, increasing allocation to equity and real estate while lowering allocation to fixed income. Other Euro area funds are comparatively stable.

  1. Lagged reporting

Asset class returns for private equity, unlisted real estate, and unlisted infrastructure as recorded by funds are not comparable to listed asset class returns. The reason is lagged reporting. For all three asset classes, the average lag is nearly one calendar year.

Because of the dispersion in reporting lag, average annual returns from unlisted asset classes appear significantly smoothed (i.e., less volatile than they are). Smoothed returns from unlisted asset classes is purely mathematical artifact, and not something a fund can achieve.

  1. Returns

Listed real estate – the arithmetic average net return for Dutch funds (2005-2016) was the second highest at 9.32 percent, comparable to private equity at 10.78 percent. For other Euro area funds over the shorter sample period 2008-2016 it was considerably lower at 5.59 percent compared to 11.55 percent for private equity. For U.K. funds where only 2010-2016 data is available for all asset classes, listed real estate had the highest net return of 10.93 percent, nearly equal to public and private equity at 10.76 and 10.86 respectively.

  1. Risk

Sharpe ratios for all asset classes are consistent across Dutch and other Euro area funds with the exception

The Fund Manager

About Alex Moss

Alex Moss

Alex is responsible for developing the newly created Centre for Real Estate Research at Cass Business School . He also runs Consilia Capital, a research and advisory firm, which specialises in the performance and strategies of real estate, infrastructure and real asset funds, work that combines academic research with practical applications. He has been involved in research and transactions in the global real estate sector for over 30 years. His career has encompassed sell side research (BZW, Macquarie), investment banking (CSFB), private equity (Apax Partners Capital), and fund management (M&G and Investec). He is Chairman of the EPRA Research Committee, a member of the EPRA Advisory Board, and Chairman of the Investment Committee for the Investec Global Real Estate Securities Fund, where he acts as a consultant. Alex is best known for his academic and commercial work in the area of Global REITs, and their use in investment strategies. In 2013, with Professor Andrew Baum they produced two innovative papers for EPRA which received wide acclaim, looking at whether listed real estate was managed as part of the real estate allocation, and the wider use and applications of listed real estate securities in asset management. His work with Kieran Farrelly on combining direct and listed property for Defined Contribution Pension schemes won a Best Paper award at the 2014 ERES conference. A particular area of interest is the use of Smart Beta and automated trading strategies, most notably Trend Following and Momentum, and his work in this area with Professor Andrew Clare and Professor Steve Thomas has been widely cited. In 2017, with Reitsmarket he produced two multifactor Global REIT Smart Beta indices, which are listed on Euronext, and marketed by Goldman Sachs. Most recently he has been concentrating on the use of listed real estate within real asset strategies.

Articles by Alex Moss

Our Partners