Key Takeaways
- • REITs outperformed U.S. private equity real estate (PERE) funds by an average of 590 basis points on a risk-adjusted basis, winning 68% of head-to-head matchups over fund investment horizons spanning 2000–2014.
- • International REIT performance exceeded global PERE fund returns by 619 basis points on a risk-adjusted basis, also capturing 68% of direct comparisons across the same vintage period.
- • Research examined 375 U.S. and 255 international closed-end PERE funds using a "horse race" methodology that matched individual private fund returns against corresponding REIT indexes, providing a comprehensive performance benchmark for institutional investors.
- • The study, conducted by Thomas R. Arnold (former Global Head of Real Estate at Abu Dhabi Investment Authority), David C. Ling, and Andy Naranjo (both University of Florida real estate professors), suggests institutional investors may achieve superior real estate exposure through publicly traded REITs rather than private equity real estate vehicles.
- • Findings sponsored by Nareit may influence capital allocation decisions among institutional investors evaluating between listed REITs and closed-end PERE funds for real estate portfolio positioning.
Summary
New research published by Nareit demonstrates that publicly traded real estate investment trusts (REITs) have substantially outperformed private equity real estate (PERE) funds across both U.S. and international markets over a 15-year period. The study, titled "Private Equity Real Estate Fund Performance: A Comparison to Listed REITs and Open-end Core Funds," employed a rigorous head-to-head comparison methodology to evaluate performance on a risk-adjusted basis, offering institutional investors quantifiable evidence for capital allocation decisions in the real estate sector.
The research, conducted by Thomas R. Arnold (former Global Head of Real Estate of the Abu Dhabi Investment Authority), David C. Ling, and Andy Naranjo (both professors specializing in real estate at the University of Florida), analyzed a comprehensive dataset of 375 U.S. and 255 international PERE closed-end funds with vintages spanning 2000 to 2014. Using a "horse race" approach, the authors compared the returns of individual private funds against either U.S. or international equity REIT indexes matched to each private fund's investment horizon, providing a direct performance comparison framework.
The results reveal a pronounced performance gap favoring REITs. In U.S. markets, REIT returns exceeded PERE risk-adjusted returns by 590 basis points on average, and REITs prevailed in 68% of direct matchups on a risk-adjusted basis. For international funds, the outperformance widened further, with global REIT returns exceeding PERE risk-adjusted returns by 619 basis points on average, also capturing 68% of head-to-head comparisons. This consistency across both domestic and international markets suggests the outperformance is not attributable to regional market dynamics but reflects structural advantages in the REIT investment model.
The findings carry significant implications for institutional capital allocation strategy. As PERE funds represent a fast-growing investment style among institutional investors seeking real estate exposure, the research suggests that investors may achieve superior risk-adjusted returns by utilizing REITs as a primary or alternative vehicle for real estate portfolio positioning. The study indicates that the liquidity, transparency, and operational efficiency inherent to publicly traded REITs may provide performance advantages over the typical fee structure and illiquidity profile of closed-end private equity real estate funds.
The research, conducted by Thomas R. Arnold (former Global Head of Real Estate of the Abu Dhabi Investment Authority), David C. Ling, and Andy Naranjo (both professors specializing in real estate at the University of Florida), analyzed a comprehensive dataset of 375 U.S. and 255 international PERE closed-end funds with vintages spanning 2000 to 2014. Using a "horse race" approach, the authors compared the returns of individual private funds against either U.S. or international equity REIT indexes matched to each private fund's investment horizon, providing a direct performance comparison framework.
The results reveal a pronounced performance gap favoring REITs. In U.S. markets, REIT returns exceeded PERE risk-adjusted returns by 590 basis points on average, and REITs prevailed in 68% of direct matchups on a risk-adjusted basis. For international funds, the outperformance widened further, with global REIT returns exceeding PERE risk-adjusted returns by 619 basis points on average, also capturing 68% of head-to-head comparisons. This consistency across both domestic and international markets suggests the outperformance is not attributable to regional market dynamics but reflects structural advantages in the REIT investment model.
The findings carry significant implications for institutional capital allocation strategy. As PERE funds represent a fast-growing investment style among institutional investors seeking real estate exposure, the research suggests that investors may achieve superior risk-adjusted returns by utilizing REITs as a primary or alternative vehicle for real estate portfolio positioning. The study indicates that the liquidity, transparency, and operational efficiency inherent to publicly traded REITs may provide performance advantages over the typical fee structure and illiquidity profile of closed-end private equity real estate funds.
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