||Performance Persistence and Capital Formation in Private Real Estate Funds
||Farrelly, Kieran; Simon Stevenson
||This study examines whether closed-ended private real estate funds exhibit performance persistence across vintage years. The relationship between capital flows and track-record, namely the performance flow relation, is also analyzed. The results provide evidence that performance persistence is a relatively short-term phenomenon for these investment conduits, both across fund family vintage years and the time period between successive fund launches (the overlap period). When considering performance on an ex-ante basis which is the track record investors can observe when committing to a newly launched fund, this persistence effect disappears. However, underperforming funds show a strong persistence effect when performance is measured on an ex-post or ex-ante basis but no performance flow relationship. This can be attributed to the actions of less sophisticated investors. Conversely outperforming funds, which we would expect to be backed by more sophisticated investors, show no performance predictability but do have a positive performance flow relationship. These results are consistent with the predictions of the Berk and Green (2004) model.
|Year of publication:
Farrelly, Kieran; Simon Stevenson (2014).
Performance Persistence and Capital Formation in Private Real Estate Funds. 21st Annual European Real Estate Society Conference in Bucharest, Romania,