Study: Only select group of property fund managers outperform market

May 13, 2008

Only a small group of elite property fund managers are able to consistently lead their funds to gains greater than the market, according to new research co-authored by a professor at Penn State's Smeal College of Business.

In a report for the Investment Property Forum, Shaun Bond, Smeal visiting associate professor of real estate, and consultant Paul Mitchell set out to determine whether real estate fund managers can achieve alpha, or risk-adjusted market outperformance over successive periods of time.

The researchers examined commercial property portfolios in the United Kingdom collected by the Investment Property Databank from 1982 to 2006. They looked at returns relative to a benchmark and on a risk-adjusted basis over successive three, five, and ten year periods to determine whether market outperformance could be sustained.

They found that the evidence of systematic market outperformance and risk-adjusted performance (alpha) is not strong and that only a select group of managers are able to sustain outperformance over an extended period of time.

Over the consecutive three-year periods, before adjusting for risk, they found the strongest evidence of persistent outperformance. The researchers found less evidence of continual performance over the five and ten year periods, with only a select few able to maintain outperformance over the successive ten-year periods.

In interviews with investors and investment consultants, Bond and Mitchell found that most investors view property as a way to diversify their portfolio and seek only beta returns, or those returns in flux with the market.

They did, however, find that "a minority viewed property in a different way, seeing market inefficiency, illiquidity, active management and also disregard of benchmark structures as sources of extra long-term return."

It's this different approach to property fund management that the authors believe leads this small group of investors to continually outperform the market.

Bond states: "Maintaining consistently high levels of alpha is incredibly difficult for most fund managers to achieve, however, one feature that we did note is that mangers using a value strategy appeared better placed to deliver high alpha in subsequent periods."

Mitchell adds: "Doing things differently from, instead of better than, your peers seems to be the key. It will be interesting to see how the 'beta' investors' strategies evolve in a world where market exposure can potentially be attained cheaply through property derivatives."

While the researchers examined property funds in the U.K., Bond says he would expect the results to be similar in the United States.

"U.S. and U.K. funds share the same investment philosophies and approach to investment analysis," he says. "Furthermore, many U.K. fund managers are owned or closely associated with U.S. financial institutions. For U.S. funds directly investing in the U.K., these results show that they will have to choose their strategy carefully if they are to succeed."

"Alpha and Persistence in UK Property Fund Management" is available from the Investment Property Forum (IPF). A summary of the report is available online at www.ipf.org.uk/resources/pdf/r… 20Pers%20Summary.pdf .

This research was commissioned and funded through the Investment Property Forum Research Program 2006-2009. IPF is one of the leading specialist property industry bodies in the U.K. with more than 1,800 members, including investment agents, fund managers, bankers, lawyers, researchers, academics, actuaries, and other related professionals.

Source: Penn State

Explore further: Best of Last Week – quantum pigeonholing, a hoverbike drone project and the sun goes quiet

add to favorites email to friend print save as pdf

Related Stories

Awarded a Pell Grant? Better double-check

9 minutes ago

(AP)—Potentially tens of thousands of students awarded a Pell Grant or other need-based federal aid for the coming school year could find it taken away because of a mistake in filling out the form.

Facebook shares profit growth story

10 minutes ago

Facebook on Wednesday reported that is quarterly profit more than doubled amid big gains in ad revenues and a jump in users.

Six charged in global e-ticket hacking scheme

38 minutes ago

Criminal charges were filed Wednesday against six people in what authorities said was a global cyber-crime ring that created fraudulent e-tickets for major concerts and sporting events.

EU sets new energy savings target at 30%

48 minutes ago

After months of tough negotiations, the European Commission recommended Wednesday a new energy savings target of 30 percent so as to combat climate change and ensure self-sufficiency.

IHEP in China has ambitions for Higgs factory

48 minutes ago

Who will lay claim to having the world's largest particle smasher?. Could China become the collider capital of the world? Questions tease answers, following a news story in Nature on Tuesday. Proposals for ...

Recommended for you

Local education politics 'far from dead'

14 hours ago

Teach for America, known for recruiting teachers, is also setting its sights on capturing school board seats across the nation. Surprisingly, however, political candidates from the program aren't just pushing ...

First grade reading suffers in segregated schools

15 hours ago

A groundbreaking study from the Frank Porter Graham Child Development Institute (FPG) has found that African-American students in first grade experience smaller gains in reading when they attend segregated schools—but the ...

Violent aftermath for the warriors at Alken Enge

15 hours ago

Denmark attracted international attention in 2012 when archaeological excavations revealed the bones of an entire army, whose warriors had been thrown into the bogs near the Alken Enge wetlands in East Jutland ...

Why aren't consumers buying remanufactured products?

17 hours ago

Firms looking to increase market share of remanufactured consumer products will have to overcome a big barrier to do so, according to a recent study from the Penn State Smeal College of Business. Findings from faculty members ...

Expecting to teach enhances learning, recall

17 hours ago

People learn better and recall more when given the impression that they will soon have to teach newly acquired material to someone else, suggests new research from Washington University in St. Louis.

User comments : 0