Have the private equity real estate funds out-performed REITs on a risk adjusted basis over time?

Abstract

Investors often face tough decisions when it comes to allocating their limited investment capital. Traditionally, private equity real estate funds (“PERE funds”) have been a popular choice, but since the 1990s, real estate investment trusts (“REITs”) have also become a widely available option. Given the range of options available, investors may be wondering which option will provide the best returns on their investment.

In this paper, we provide a comparison of the return performance between REITs and PERE Funds’ three main strategies, including Core, Value-Added, and Opportunistic, from 2000 to 2020. The study analyzes a series of data from Preqin, NCREIF, NAREIT and SBBI. Our study features the use of the Treynor ratio to measure investment performance on a risk-adjusted basis, to provide a rigorous quantitative approach to comparing the total returns of both PERE funds and REITs. Overall, we find that listed REITs slightly outperformed PERE Funds in the past 21 years. In the end, the study suggests an implied recommendation on investment strategies. reflecting our findings.