Performance of Open-Ended Real Estate Funds in Germany: Are Institutional Investors Better Off Than Retail Investors?

Abstract

Purpose: In Germany, open‐ended funds represent the prevailing form of indirect real estate investment for retail and institutional investors. The purpose of this paper is to address whether significant performance differences occur between retail and institutional funds.

Design/methodology/approach: The relative fund performance of 137 funds investing in Germany and abroad are each measured against tailored Investment Property Databank performance benchmarks of direct property investments. Such benchmarks shall mimic the asset allocation of any particular fund. Data on retail fund performance are retrieved from the fund association BVI, the data on institutional fund performance are derived from the individual statements of accounts for each fund.

Findings: German open‐ended funds show significant differences in mean relative returns. The differences are mainly driven by the respective asset allocation of the funds, although relative returns against tailored benchmarks as dependent variables are supposed to offset country‐specific return fluctuations. Institutional investors tend to be better‐off than retail investors.

Research limitations/implications: Liquidity holdings are not (and can not be) extracted from fund performance with the given data. In this regard, it must be acknowledged that retail funds by nature are induced to carry more liquidity. Second, the high significance of the factor asset allocation may indicate that country‐specific benchmarks could still be tailored more effectively. However, the conclusions from this paper remain unaffected. Ex post variations in the grouping of funds explain additional fund performance variance. In particular, it would be interesting to analyze the performance patterns of single‐investor funds and the influence or control that is being exercised by single‐investors in institutional funds.

Originality/value: Results give new insights into the performance of open‐ended real estate funds. The analysis helps explaining performance patterns and contributes to an improved understanding of the German indirect real estate investment market.

Keywords: Investment funds, real estate, assets, finanicial performance, Germany