Real estate investors wanting higher returns should look at smaller real estate funds according to a new report
Real estate investors wanting higher returns should look at smaller real estate funds according to a new report.
While larger funds may offer lower volatility, smaller private real estate funds with a 2005-2014 vintage posted a median return of 10.9% compared to mid-size (9.9%) and large (6.9%) funds.
The figures from analysts at Preqin reveal that in the year to March 2017, smaller funds have produced returns of an average 11.8% with mid-size and large funds lagging at 9.2%.
“The private real estate industry has experienced increased capital concentration over the past few years, as investors have committed an increasing amount of capital to fewer larger funds. On a purely performance basis,
however, smaller funds have higher average returns across most vintage years, and outperform larger and mid-size funds across short- and long-term horizons,” said Oliver Senchal, head of real estate products at Preqin.
Smaller private real estate funds in the study means those of $500m or less, mid-size funds denotes funds of $500mn-999mn and larger funds denotes funds of $1bn or more.
The figures show that 28% of smaller vehicles are in the top quartile of their respective vintage years, compared to just 17% of mid-size funds and 16% of large funds.
“With concerns of an upcoming downturn in the real estate market, it may spell a reversal in fortune for smaller funds which managed to demonstrate stronger performance in challenging market conditions,” added Senchal.
While larger funds may offer lower volatility, smaller private real estate funds with a 2005-2014 vintage posted a median return of 10.9% compared to mid-size (9.9%) and large (6.9%) funds.
The figures from analysts at Preqin reveal that in the year to March 2017, smaller funds have produced returns of an average 11.8% with mid-size and large funds lagging at 9.2%.
“The private real estate industry has experienced increased capital concentration over the past few years, as investors have committed an increasing amount of capital to fewer larger funds. On a purely performance basis,
however, smaller funds have higher average returns across most vintage years, and outperform larger and mid-size funds across short- and long-term horizons,” said Oliver Senchal, head of real estate products at Preqin.
Smaller private real estate funds in the study means those of $500m or less, mid-size funds denotes funds of $500mn-999mn and larger funds denotes funds of $1bn or more.
The figures show that 28% of smaller vehicles are in the top quartile of their respective vintage years, compared to just 17% of mid-size funds and 16% of large funds.
“With concerns of an upcoming downturn in the real estate market, it may spell a reversal in fortune for smaller funds which managed to demonstrate stronger performance in challenging market conditions,” added Senchal.
