Class Differences in Real Estate Private Equity Fund Performance
Lynn M. Fisher, David J. Hartzell
Real estate private equity (REPE) funds are often differentiated by risk class: Core, Value-Added, or Opportunistic. Fund class is used by investors and managers to allocate funds and to describe investment policies. In this paper, we use REPE fund cash flow data from Burgiss that allow us to calculate a variety of performance metrics. For a subset of the data, we also observe characteristics of underlying fund holdings. Despite evidence that Value-Added and Opportunistic funds differ in investment composition, we show that class does not do a good job of predicting differences in performance. Unsurprisingly, greater investment in development (as assessed ex post), predicts poor performance for funds raised just before the Great Recession.
This paper also led to a Landmark Brief entitled Real Estate Private Equity Funds: How Useful Are Class Distinctions? 2014, by Lynn Fisher as invited by Barry Griffiths based on PERC conference talk.