Performance of private equity real estate funds

Abstract

Purpose

This paper aims to focus on the performance of private equity real estate funds. Since many institutional investors have special programs to invest with first time managers, or emerging fund managers, it also seeks further evidence on how persistent the performance of real estate funds is and how the growth in fund size affects the realised returns of a fund.

Design/methodology/approach

The analyses performed are based on a large global sample of value‐added and opportunistic private real estate funds. Different model specifications are used to study the fund and sponsor‐related factors' correlation with fund performance.

Findings

It is shown that the realised performance is positively correlated with fund size but negatively correlated with the sequence number of the fund supporting the fact that emerging managers are likelier to achieve good returns. The data also reveal trends in fund performance and the growth of the fund size. Evidence from private equity buy‐out funds has also shown that better performing fund managers are likely to raise follow‐on funds and often larger funds than poorly performing fund managers which is also confirmed by the findings of this paper. There is also an evidence that top‐performing funds do not grow proportionally as much as the average funds.

Research limitations/implications

Actual datasets used in the regression models are often limited by exclusion of immature funds to enhance reliability of results.

Originality/value

This paper expands the recent studies on private equity to private real estate, an area that has experienced substantial growth during the past ten years.

Citation

Tomperi, I. (2010), "Performance of private equity real estate funds", Journal of European Real Estate Research, Vol. 3 No. 2, pp. 96-116. https://doi.org/10.1108/17539261011062592