The performance of a blended real estate portfolio for UK DC investors
| Published date | 02 March 2015 |
| Date | 02 March 2015 |
| Pages | 156-168 |
| DOI | https://doi.org/10.1108/JPIF-10-2014-0064 |
| Author | Alex Moss,Kieran Farrelly |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
The performance of a blended
real estate portfolio for UK DC
investors
Alex Moss
Consilia Capital & Cass Business School, City University, London, UK, and
Kieran Farrelly
The Townsend Group, London, UK
Abstract
Purpose –The purpose of this paper is to provide a better understanding of the performance
implications for UK DC pension fund investors who choose to combine global listed and UK unlisted
real estate in a blended allocation relative to a pure unlisted solution.
Design/methodology/approach –Blended listed and unlisted real estate portfolios are constructed.
Investor risk and returns are then studied over the full 15 year sample horizon and distinct cyclical
phases over this period using a number of risk-return metrics. Performance is then contrasted with that
of a pure unlisted solution, as well as UK equity market and bond total returns over the same period.
Findings –A UK DC pension fund investor choosing to construct a blended global listed and UK
unlisted real estate portfolio would have experienced material return enhancement relative to a pure
unlisted solution. The “price”of this enhanced performance and improved liquidity profile is,
unsurprisingly, higher portfolio volatility. However, because of the improved returns, the impact upon
measured risk adjusted returns is less significant.
Practical implications –Relatively liquid blended listed and unlisted real estate portfolios create
efficient risk and return outcomes for investors.
Originality/value –This study uses actual fund rather than index data (i.e. measures delivered
returns to investors), has chosen a global rather than single country listed real estate allocation and is
focused on providing clarity around the real estate exposure for a specific investment requirement,
the UK DC pension fund market.
Keywords Finance, Portfolio management, Investment, Listed real estate, Pension fund,
Unlisted real estate
Paper type Research paper
Introduction
This paper seeks to provide a better understanding of the performance implications for
investors who choose to combine a global listed real estate with an unlisted real estate
allocation. Specifically, it provides a detailed investor level analysis of the impact of
combining UK unlisted fund and global listed real estate fund exposures to satisfy the
requirements of a real estate allocation in a UK Defined Contribution Pension Fund
(“DC”). The catalyst for this paper was the recent report by the Pensions Institute
(2013). This highlighted both the rationale for real estate in DC funds and specifically
the use of a blended product, which combined a 70 per cent UK unlisted allocation with
a 30 per cent global listed allocation to provide this exposure. For the purposes of this
study we refer to this 70/30 mix as the “UK DC Real Estate Fund”.
There are currently three factors which are of utmost importance to investors and
which lie behind the increased interest in blending listed and unlisted real estate,
namely liquidity, cost and ease of execution. It is well understood that direc t real estate
can be a beneficial component of a multi-asset portfolio, primarily due to the diversification
Journal of Property Investment &
Finance
Vol. 33 No. 2, 2015
pp. 156-168
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-10-2014-0064
Received 29 October 2014
Revised 2 January 2015
Accepted 2 January 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
156
JPIF
33,2
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