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The purpose of this paper is to uncover the relationship between flows and real estate investment at open-ended real estate funds (OEREFs).

The study employs fixed-effects panel regressions, relying on data from the Hungarian fund managers’ trade association. First, the effect of lagged flows on allocation to real estate is assessed. Second, the paper studies how this relationship changes as the cyclical position of CRE market advances using two proxies.

Flows are found to affect funds’ real estate holdings if they occurred 12–18 months earlier. Inflows (outflows) in the preceding six months demonstrably lower (increase) funds’ real estate holdings ratio. Beyond this relationship, findings do not suggest that less funds are channelled to real estate as “CRE heat” intensifies.

In an environment marked by strong cash inflows, the investment lag can translate into a significant drop in funds’ exposure to real estate. The share of real estate at Hungarian funds in the sample, for example, fell from 79 to 50 per cent on average over the period of 2011–2017. Measures designed to limit inflows are in the interest of those existing investors who wish to avoid a dilution of the core investment strategy.

The paper adds to the literature on OEREFs which has been particularly scarce on liquidity transformation during non-crisis times and on non-German funds.