City Research Online

Abstract

This study focuses on the relationship between fund performance, sector specialisation and the state of the economy in the unlisted European real estate fund sector. We construct a sector concentration index to measure the impact of sector specialisation on unlisted fund performance, measured by total returns, in Europe. Using the INREV database, our sample draws from 634 private real estate funds investing in European countries over the period 2000 to the end of 2021. After controlling for key factors influencing fund performance, we find a positive and statistically significant relationship, at the 10% level, between sector specialisation and fund performance. Specifically, fund managers who concentrate their resources on a smaller number of sectors tend to achieve stronger performance, and this result is not driven by any particular sector. An implication of this study is that the results could be conditional to the method selected to measure sector specialisation. A consistent finding across specifications is that a recession has a significant adverse impact on fund performance. The positive relationship between fund performance and total returns is weakened during recessions; however, this finding is not statistically significant. These tentative findings are particularly relevant for sector-specific funds, which lack the mandate to diversify into other sectors. To protect performance during recessions, such funds may need to consider alternative de-risking strategies, including increasing geographical diversification, optimising tenant mix, and deleveraging.

Publication Type:	Article
Additional Information:	This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Publisher Keywords:	Private real estate funds, Financial performance, Sector specialisation, Economic downturns
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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