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Intermediated Investment Management in Private Markets: Evidence from Pension Fund Investments in Real Estate

44 Pages Posted: 2 Feb 2012 Last revised: 30 Aug 2014

Aleksandar Andonov

Erasmus University Rotterdam, Erasmus School of Economics

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Nils Kok

University of Maastricht - Limburg Institute of Financial Economics (LIFE)

Date Written: July 31, 2014

Abstract

We evaluate the economics of financial intermediation in alternative assets by investigating the allocation and performance of pension fund investments in real estate, the most significant alternative asset class for institutional investors. We document substantial heterogeneity in real estate investment cost and performance, determined by two main factors: mandate size and investment approach. Larger pension funds are more likely to invest in real estate internally, have lower costs, and higher net returns. Smaller pension funds invest primarily in direct real estate through external managers and fund-of-funds, and disregard listed property companies. Overall, we find that delegating real estate investment management to financial intermediaries increases costs and disproportionally reduces returns.

Keywords: pension fund, real estate, delegated investment management, economies of scale, performance

JEL Classification: G11, G20, G23

Suggested Citation

Andonov, Aleksandar and Eichholtz, Piet M. A. and Kok, Nils, Intermediated Investment Management in Private Markets: Evidence from Pension Fund Investments in Real Estate (July 31, 2014). Available at SSRN: https://ssrn.com/abstract=1996819 or http://dx.doi.org/10.2139/ssrn.1996819

Aleksandar Andonov (Contact Author)

Erasmus University Rotterdam, Erasmus School of Economics ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Piet M. A. Eichholtz

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 3883648 (Phone)
+31 43 3258530 (Fax)

Nils Kok

University of Maastricht - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

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