Do private funds outperform public index funds?
For anyone who works at a private fund, what are your returns and how do they compare to just investing in an index fund? Is there a good comparison of private real estate investments versus say the S&P500 or Vanguard's real estate index fund VGSLX?
Go look up the the NCREIF indexes and the PREA indexes, generally REITs have outperformed private real estate. But when leveraged factored and other style considerations, may not be so dramatic. Still, REITs have largely been "winners" most years for last 20 years compared to private real estate (but with more volatility of course).
Why do private funds continue to exist if they underperform? And can you post the data/charts from NCREIF and PREA? It looks like I need a membership to access.
For NCREIF just look at the press releases, it's public, most of these can be found in public reports, it's a common topic.
REITs are "outperforming" due to stock market effects, and the fact that the real estate owned isn't perfectly comparable (Like American Tower is the largest REIT, is that even really real estate??). Far more real estate is privately owned/controlled, and people want it that way (they don't want all their money in the stock market, and going "public" is not free).
Still, REIT market cap is about $1.33 Trillion in the US, managed private US real estate is $3.4 trillion, and that doesn't even come close to getting all the corp/private direct held real estate not in some managed fund vehicle.
The real question to ask, is why do publicly traded REITs diverge from private real estate returns so often?
this guy is way too fucking smart to be posting on here. wtf is he even doing here? young guys follow him asap!
Isn't this because private real estate isn't priced daily? If anything, the public markets give us a better view of valuation of privately held real estate because there is price discovery in public markets. In other words, if your valuation of private assets is based on quarterly or annual appraisals, then it's a stretch to believe valuations in the private market haven't changed when publicly traded REITs experience a massive price crash.
I will take a look at the NCREIF data, thanks for pointing that out. Is there any data on how percentage of real estate owned by private individuals vs private equity vs public equity? Where are you getting those numbers from?
It’s not always about out performing. REIT returns are significantly more volatile, and they are pretty highly correlated with the general equity markets.
if you are trying to diversify a portfolio, funds can provide more value with their lower volatility and low correlation with equity markets.
NCREIF is unlevered but their ODCE index is levered.
You also have to pay ordinary income taxes on REIT dividends, except some special dividends.
This is the same deal as with private funds, equal tax treatment. REITs pay no corp taxes thus their dividends are not "qualified" dividends, essentially the same pass-through taxation most private real estate funds offer.
At least this cycle, which has featured ultra low interest rates, the bond market allows the public REITs to access extremely favorable financing at levels generally unavailable at the private level. Also, with the typical scale of REITS comes particular opportunity to financial engineer deals/the portfolio in accretive ways and thus, drive returns. I know... As I get beat up by prominent REITs all the time.
Another angle - a lot of REITS (obviously not all of them) are longer-term holders so inherently get the benefit of lower a lower basis in an upward trending market. You can do the math but at a peaking market it is logical that REITs should be outperforming their private counterparts that may be shorter term holders (depending on which metric is the focal point).
Just a couple answers to an overall very intricate and nuanced questions.
Vel eos doloribus et labore repudiandae facere tenetur. Animi eos harum omnis occaecati. Rem provident et ad sed dignissimos. Maxime eveniet velit nostrum.
In repellendus cupiditate ut distinctio ipsa. Ipsum voluptate ut qui expedita magni provident. Explicabo eos minima deserunt quaerat fugiat qui aut. Laborum natus dicta nisi qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...