Key Takeaways
- • REITs outperformed private equity real estate (PERE) funds in 68% of head-to-head matchups across both domestic and international comparisons, according to research published in the Journal of Portfolio Management Real Estate Special Issue 2021.
- • U.S.-focused REIT returns exceeded risk-adjusted PERE returns by an average of 590 basis points, while global REITs outperformed international PERE funds by 619 basis points on a risk-adjusted basis.
- • The study analyzed 375 U.S. and 255 international PERE closed-end funds with vintages spanning 2000 to 2014, representing a comprehensive dataset that controlled for matched investment horizons between asset classes.
- • Research was 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), and was sponsored by Nareit.
- • The findings suggest that investors in PERE funds would have achieved superior risk-adjusted returns by allocating capital to listed REITs instead.
Summary
A peer-reviewed study published in the Journal of Portfolio Management Real Estate Special Issue 2021 demonstrates that publicly traded REITs substantially outperformed private equity real estate funds across multiple performance metrics and geographic segments. The research, sponsored by Nareit and conducted by a team of academic researchers and industry practitioners, analyzed whether investors in PERE funds would have achieved higher returns through direct REIT investments over matched time periods.
The study's scope is notable for its breadth. Researchers evaluated 375 U.S. and 255 international PERE closed-end funds with vintages from 2000 to 2014, creating a robust dataset for comparative analysis. The research team included Thomas R. Arnold, former Global Head of Real Estate at the Abu Dhabi Investment Authority, and David C. Ling and Andy Naranjo, both professors specializing in real estate at the University of Florida.
The performance differential favoring REITs is substantial. On a risk-adjusted basis, U.S. REITs exceeded PERE fund returns by an average of 590 basis points, winning 68% of direct matchups against domestic private equity real estate funds. In international comparisons, global REITs outperformed PERE funds by 619 basis points on a risk-adjusted basis, also winning 68% of head-to-head matchups. These margins represent significant alpha generation and suggest systematic outperformance rather than isolated performance anomalies.
The implications of this research are noteworthy for institutional investors evaluating real estate allocation strategies. The consistent 68% win rate across both domestic and international segments, combined with risk-adjusted return premiums exceeding 590 basis points, challenges the traditional institutional investor narrative that PERE funds command performance premiums justifying their illiquidity, opaque fee structures, and longer capital commitment horizons. The study's methodology—comparing actual PERE fund results against contemporaneous REIT performance over matched investment periods—provides a pragmatic framework for evaluating the trade-offs between public and private real estate exposure.
The study's scope is notable for its breadth. Researchers evaluated 375 U.S. and 255 international PERE closed-end funds with vintages from 2000 to 2014, creating a robust dataset for comparative analysis. The research team included Thomas R. Arnold, former Global Head of Real Estate at the Abu Dhabi Investment Authority, and David C. Ling and Andy Naranjo, both professors specializing in real estate at the University of Florida.
The performance differential favoring REITs is substantial. On a risk-adjusted basis, U.S. REITs exceeded PERE fund returns by an average of 590 basis points, winning 68% of direct matchups against domestic private equity real estate funds. In international comparisons, global REITs outperformed PERE funds by 619 basis points on a risk-adjusted basis, also winning 68% of head-to-head matchups. These margins represent significant alpha generation and suggest systematic outperformance rather than isolated performance anomalies.
The implications of this research are noteworthy for institutional investors evaluating real estate allocation strategies. The consistent 68% win rate across both domestic and international segments, combined with risk-adjusted return premiums exceeding 590 basis points, challenges the traditional institutional investor narrative that PERE funds command performance premiums justifying their illiquidity, opaque fee structures, and longer capital commitment horizons. The study's methodology—comparing actual PERE fund results against contemporaneous REIT performance over matched investment periods—provides a pragmatic framework for evaluating the trade-offs between public and private real estate exposure.
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