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  • ESTABLISHING A BLENDED GLOBAL REAL ESTATE INVESTMENT STRATEGY USING TRANSACTION

    BASED INDICES

    Alex Moss Consilia Capital

    alex.moss@consiliacapital.com

    Nigel Almond DTZ nigel.almond@dtz.com

    American Real Estate Society Florida

    April 2015

  • CONTENTS

    Background

    Purpose of the Study

    Data

    Methodology

    Results

    Summary

    References

    2

  • BACKGROUND

    This latest study relates to, and follows on from, four previous studies.

    Performance implications of combining listed and unlisted real estate Published: January 2014

    Purpose: to understand the performance of blending (global) listed and (UK) unlisted for a DC scheme.

    Returning to the core: rediscovering a role for real estate in defined contribution pension schemes. Published: October 2013

    Purpose: to understand the role that real estate can play in a DC rather than DB scheme.

    Are listed real estate stocks managed as part of the real estate allocation Published : August 2013

    Purpose: to understand how listed real estate is treated in the asset allocation process by practitioners.

    The use of listed real estate securities in asset management Published: March 2013

    Purpose: to provide a comprehensive literature review of the impact of using listed real estate in asset management and summary of current practical applications.

    3

  • BACKGROUND

    This paper seeks to provide a better understanding of the performance implications for investors who choose to combine listed real estate with an unlisted real estate allocation

    The catalyst for this paper was the recent report by the Pensions Institute which highlighted both the rationale for real estate in DC funds, and specifically, the use of a blended product by NEST, which combined a 70% (UK) unlisted allocation with a 30% global listed allocation, to provide this exposure. We call this 70/30 mix a DC Real Estate Fund.

    4

  • BACKGROUND WHY BLENDING ?

    Liquidity

    Cost

    Ease of implementation

    One of the key challenges for both asset allocators and product developers is how to provide real estate exposure in a mixed asset portfolio with acceptably high levels of liquidity and low levels of cost.

    Clearly, a 100% exposure to unlisted funds or direct real estate would not be expected to meet this demanding criteria.

    5

  • BACKGROUND WHY TRANSACTION BASED INDICES ?

    6

  • BACKGROUND WHY TRANSACTION BASED INDICES ?

    7

  • PURPOSE OF THE STUDY

    The aim of the study is to answer the following questions: Is the benefit to returns shown for incorporating global listed real estate

    securities with a UK direct property fund also apparent if the direct property element comprises European, or Asian holdings?

    How does the performance impact change over the cycle?

    Is there a benefit to using transaction rather than appraisal based indices

    8

  • DATA

    Listed real estate Global Listed Real Estate EPRA Global Developed Index UK Listed Real Estate - FTSE EPRA/NAREIT UK Index European Listed Real Estate - FTSE EPRA/NAREIT Developed Europe Index Asian Listed Real Estate -FTSE EPRA/NAREIT Developed Asia Index

    Direct Real Estate UK DTZ TBI UK All Property Index Europe DTZ TBI Europe ex UK Index Asia DTZ TBI APAC Index

    Blended Portfolio = 70% Direct , 30% Listed

    Frequency: Monthly Currency: LOCAL Return: PRICE Period: 2004-2014

    9

  • FINDINGS UK DIRECT + GLOBAL LISTED (GBP)

    0

    50

    100

    150

    200

    250

    UK direct Global listed 70/30

    10

  • FINDINGS UK DIRECT + GLOBAL LISTED (GBP) ROLLING 12M

    -60

    -40

    -20

    0

    20

    40

    60

    80

    UK direct Global listed 70/30

    11

  • FINDINGS EUROPE (x UK) DIRECT + GLOBAL LISTED (EUR)

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    200

    Europe x UK direct Global Listed 70/30

    12

  • FINDINGS EUROPE (x UK) DIRECT + GLOBAL LISTED (EUR) ROLLING 12M

    -60

    -40

    -20

    0

    20

    40

    60

    80

    Europe x UK direct Global listed 70/30

    13

  • FINDINGS -ASIA PAC DIRECT + GLOBAL LISTED

    0.00

    20.00

    40.00

    60.00

    80.00

    100.00

    120.00

    140.00

    160.00

    180.00

    200.00

    Asia Direct Global Listed 70/30

    14

  • FINDINGS -ASIA PAC DIRECT + GLOBAL LISTED ROLLING 12M

    -80

    -60

    -40

    -20

    0

    20

    40

    60

    80

    100

    Asia Direct Global Listed 70/30

    15

  • FINDINGS - QUARTERLY, ROLLING 12M and ANNUAL ENHANCEMENTS

    UK Europe Asia

    Q2 2002 0.11% 4.56%

    Q3 2002 -2.31% -0.27%

    Q4 2002 -4.48% -2.36%

    Q1 2003 -0.29% -0.61%

    Q2 2003 -0.16% -3.32%

    Q3 2003 2.93% -0.05%

    Q4 2003 2.75% 1.93%

    Q1 2004 -0.24% 0.74%

    Q2 2004 1.57% 5.70%

    Q3 2004 -2.65% 0.55%

    Q4 2004 1.35% 1.97%

    Q1 2005 2.57% 1.50%

    Q2 2005 -1.36% -2.44% 2.18%

    Q3 2005 3.97% 2.21% 1.01%

    Q4 2005 0.89% -0.64% -1.32%

    Q1 2006 0.81% 0.17% 1.52%

    Q2 2006 2.36% 2.69% -3.87%

    Q3 2006 -3.74% -3.22% -0.23%

    Q4 2006 1.40% 3.33% 4.01%

    Q1 2007 1.29% 3.31% 1.88%

    Q2 2007 0.50% 0.61% -1.41%

    Q3 2007 -1.89% -1.25% 0.21%

    Q4 2007 1.77% -0.23% -4.46%

    Q1 2008 -0.27% -4.18% -2.65%

    Q2 2008 2.26% -2.71% -3.94%

    Q3 2008 0.29% -2.63% -2.37%

    Q4 2008 2.17% 2.03% -5.46%

    Q1 2009 -3.87% -6.91% -1.79%

    Q2 2009 -7.21% -4.63% 7.42%

    Q3 2009 4.11% 9.04% 6.75%

    Q4 2009 7.09% 3.15% -0.29%

    Q1 2010 -0.33% 0.98% -1.61%

    Q2 2010 1.97% 0.94% -4.72%

    Q3 2010 -1.56% -1.38% 2.59%

    Q4 2010 0.91% 0.95% 0.91%

    Q1 2011 0.91% 1.09% 0.13%

    Q2 2011 -0.02% -0.89% 0.09%

    Q3 2011 0.91% 0.85% -5.03%

    Q4 2011 -3.54% -1.50% 0.56%

    Q1 2012 2.80% 4.40% 1.22%

    Q2 2012 2.80% 3.55% -1.18%

    Q3 2012 0.89% 1.58% -0.12%

    Q4 2012 -0.37% -1.19% 0.33%

    Q1 2013 0.58% 0.93% 0.63%

    Q2 2013 4.61% 2.03% -1.25%

    Q3 2013 -1.85% -2.22% 0.55%

    Q4 2013 -1.91% 0.09% 0.01%

    Q1 2014 -1.36% -0.74% 0.81%

    Q2 2014 -2.07% 0.17% 1.32%

    Q3 2014 -2.43% 1.09% -2.12%

    16 UK Europe Asia

    Q1 2003 -7.18 -2.31

    Q2 2003 -7.05 -2.13

    Q3 2003 -2.14 -0.49

    Q4 2003 4.53 -0.21

    Q1 2004 4.70 6.48

    Q2 2004 6.69 4.84

    Q3 2004 1.25 7.25

    Q4 2004 -0.13 9.92

    Q1 2005 2.86 4.75

    Q2 2005 -0.33 8.79

    Q3 2005 6.47 4.57

    Q4 2005 6.21 0.36

    Q1 2006 4.60 4.06 4.00

    Q2 2006 9.40 -3.60 -3.13

    Q3 2006 0.01 0.13 -5.01

    Q4 2006 0.62 4.75 2.08

    Q1 2007 1.22 5.53 2.50

    Q2 2007 -1.03 4.17 4.50

    Q3 2007 1.19 2.48 4.61

    Q4 2007 1.68 -5.21 -3.85

    Q1 2008 -0.02 -12.28 -8.36

    Q2 2008 1.75 -9.20 -11.38

    Q3 2008 3.42 -10.08 -13.45

    Q4 2008 3.83 -12.64 -13.30

    Q1 2009 0.58 -9.73 -10.89

    Q2 2009 -7.92 -3.60 -1.87

    Q3 2009 -6.35 1.22 4.45

    Q4 2009 -3.23 9.04 10.16

    Q1 2010 1.87 15.83 13.42

    Q2 2010 15.09 7.49 0.81

    Q3 2010 8.01 -1.32 -4.92

    Q4 2010 1.14 2.40 -3.33

    Q1 2011 2.78 -2.65 -1.23

    Q2 2011 0.22 -1.41 3.98

    Q3 2011 3.41 -2.59 -4.15

    Q4 2011 -2.45 0.10 -4.60

    Q1 2012 -0.31 6.19 -3.71

    Q2 2012 2.86 8.89 -5.26

    Q3 2012 2.92 12.82 0.55

    Q4 2012 7.57 7.23 0.27

    Q1 2013 5.15 6.07 -0.37

    Q2 2013 7.97 -0.32 -0.49

    Q3 2013 3.91 -3.00 0.25

    Q4 2013 1.56 -1.14 -0.08

    Q1 2014 -1.06 -3.07 0.12

    Q2 2014 -10.45 1.47 2.66

    Q3 2014 -11.63 2.73 0.05

    UK Europe Asia

    2003 4.53 -0.21

    2004 -0.13 9.92

    2005 6.21 0.36

    2006 0.62 4.75 2.08

    2007 1.68 -5.21 -3.85

    2008 3.83 -12.64 -13.30

    2009 -3.23 9.04 10.16

    2010 1.14 2.40 -3.33

    2011 -2.45 0.10 -4.60

    2012 7.57 7.23 0.27

    2013 1.56 -1.14 -0.08

  • CONCLUSIONS AND NEXT STEPS

    The findings of this study are consistent with our previous work in the UK , showing

    that combining global listed real estate exposure with a regional direct allocation to

    Europe or Asia can enhance performance in absolute terms.

    The impact for Asian portfolios is less consistent, illustrating the different performance

    dynamics and cycles relative to US, and UK/Europe.

    The benefit is noticeable at different stages of the cycle from the UK.

    By using transaction based indices we have significantly reduced the lag effect , which

    potentially reduces the observed benefits of blending in nominal rather than actual

    terms

    We believe that the next steps in the evolution of this integrated approach will be to

    perform a more detailed analysis of the resultant risk metrics to provide risk adjusted

    returns for the blended portfolio, as well as comparing results with those using an

    appraisal based index.

    17

  • Disclaimer

    The information contained in this report was obtained from various sources. No representation or warranty, express or implied, is made, given or intended by or on behalf of Consilia Capital Limited or any of its directors, officers or employees and no responsibility or liability is accepted by Consilia Capital Limited or any of its directors, officers or employees as to the accuracy, completeness or fairness of any information, opinions (if any) or analysis (if any) contained in this report. Consilia Capita