New research launched in November by IPD will be the first in a series of reports by Investment Property Databank’s research team, which focuses on real estate as an institutional asset class.
The real estate sector has received growing interest from institutions, as a potential source of income, return and diversification. In response, IPD has enhanced the size and scope of its research department across Europe, North America and Asia to provide analysis that places real estate in the context of other asset classes.
Peter Hobbs, Managing Director & Head of Research, IPD, said, “Continued institutional investment into real estate means further research is needed to define and explain real estate’s role in a multi-asset-class portfolio. IPD is committed to improving the transparency of real estate and we have realigned our research efforts to support investors in understanding this private asset class.”
The latest research paper entitled ‘Private Real Estate: From Asset Class to Asset’ highlights that investors are becoming less interested in allocating class by class, but more interested in identifying the sources of volatility in the portfolio.
The research goes on to show that an investor’s risk analysis needs to go beyond that of the market to include portfolio and asset-specific risks. The study draws upon IPD’s global real estate databank and uses over 7,000 assets, held by institutional funds over the last 10 years. The assets were used to construct dummy portfolios, the performance of which was compared to a benchmark to find the sources of active risk.
Greg Mansell, Vice President & Head of Applied Research, IPD, and the author of the report, said, “Real estate portfolios behave differently from the wider market, and active risk is unavoidable when investing directly. The research identifies the proportion of active risk that can be driven by the market and the proportion that can be driven by asset-specific factors, for an average-sized portfolio.
“Whether investment is focused domestically or globally, benchmarking and attribution analysis is required to measure active risk. The analysis is used to determine the relative success, or failure, of the top-down market strategy and bottom-up selection process.”
The research found that market-level and asset-level risks can be equally important for a global portfolio, but the majority of active risk, particularly for domestic portfolios, can be attributed to asset-level risk. Understanding asset-specific factors, related to tenants and leases, can be just as influential over portfolio performance as selecting geographies.
With this in mind, IPD has created a new set of global data packages and is in the process of adding existing tenant and lease information, including credit scores into the IPD Portfolio Analysis Service.
Davide Manstretta, Executive Director & Head of Product Management, IPD, said, “Investors and fund managers want to measure their market and asset exposures in a systematic way. IPD has developed its market data products so investors can compare national markets on a like-for-like basis. The IPD Portfolio Analysis Service is evolving into one that combines investment performance reporting with cash-flow monitoring.”