Key Takeaways
- • Listed REITs outperformed private equity real estate funds in 53% of head-to-head comparisons over a 20-year period (Q1 2000–Q4 2019), with mean outperformance of 165 basis points annually on an unadjusted basis.
- • Study authored by Tom Arnold, David Ling, and Andy Naranjo, published in the *Journal of Portfolio Management* and sponsored by Nareit, directly compared individual private fund returns against REIT indexes over each private fund's investment horizon.
- • Seasoned private equity real estate (PERE) funds underperformed listed REITs by an average of 165 basis points per year; economic life funds trailed by 186 basis points, suggesting material performance gaps across fund categories.
- • Research findings indicate institutional investors should reassess their allocation weightings toward public real estate, challenging the long-held institutional preference for private equity real estate vehicles.
- • Analysis employed both risk-adjusted and unadjusted return metrics, demonstrating that REIT outperformance held even without controlling for volatility or other risk factors.
Summary
A peer-reviewed study released by Nareit demonstrates that publicly traded REITs substantially outperformed private equity real estate funds across a two-decade sample period, with implications for institutional portfolio construction and asset allocation strategy. The research, titled *Private Equity Real Estate Fund Performance: A Comparison to Listed REITs and Open-end Core Funds* and published in the *Journal of Portfolio Management*, examined 20 years of return data from the first quarter of 2000 through the fourth quarter of 2019, directly comparing individual private fund performance against REIT index benchmarks measured over each private fund's investment horizon.
The headline finding is stark: listed REITs outperformed private equity real estate in 53% of direct matchups, delivering mean outperformance of 165 basis points annually on an unadjusted basis. Tom Arnold, one of the three study authors alongside David Ling and Andy Naranjo, emphasized that this outperformance persisted even when returns were examined without risk adjustments. The authors also reported that seasoned PERE funds trailed listed REITs by an average of 165 basis points per year based on internal rate of return (IRR), while economic life funds showed even wider performance gaps of approximately 186 basis points annually.
The research addresses a fundamental institutional investor question: whether public or private real estate markets generate superior risk-adjusted returns. By measuring both naive and risk-adjusted returns, the authors provided a comprehensive framework for performance comparison. Their methodology compared individual fund results directly against real estate indices, avoiding potential survivorship bias and index-smoothing effects that have historically obscured performance differentials in private asset analysis.
These findings carry significant implications for asset allocators at pension funds, endowments, family offices, and other institutional investors who have traditionally emphasized private equity real estate as a core real estate exposure. The data suggests that conventional allocations to PERE vehicles may warrant reassessment, particularly given the liquidity advantages and performance track record of publicly traded REITs. The study's publication in an academic journal and sponsorship by Nareit underscore the rigor applied to this comparative analysis and its potential influence on institutional allocation decisions.
The headline finding is stark: listed REITs outperformed private equity real estate in 53% of direct matchups, delivering mean outperformance of 165 basis points annually on an unadjusted basis. Tom Arnold, one of the three study authors alongside David Ling and Andy Naranjo, emphasized that this outperformance persisted even when returns were examined without risk adjustments. The authors also reported that seasoned PERE funds trailed listed REITs by an average of 165 basis points per year based on internal rate of return (IRR), while economic life funds showed even wider performance gaps of approximately 186 basis points annually.
The research addresses a fundamental institutional investor question: whether public or private real estate markets generate superior risk-adjusted returns. By measuring both naive and risk-adjusted returns, the authors provided a comprehensive framework for performance comparison. Their methodology compared individual fund results directly against real estate indices, avoiding potential survivorship bias and index-smoothing effects that have historically obscured performance differentials in private asset analysis.
These findings carry significant implications for asset allocators at pension funds, endowments, family offices, and other institutional investors who have traditionally emphasized private equity real estate as a core real estate exposure. The data suggests that conventional allocations to PERE vehicles may warrant reassessment, particularly given the liquidity advantages and performance track record of publicly traded REITs. The study's publication in an academic journal and sponsorship by Nareit underscore the rigor applied to this comparative analysis and its potential influence on institutional allocation decisions.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.