The Performance of a Blended Real Estate Portfolio for UK DC Investors

Abstract

Purpose – The purpose of this paper is to provide a better understanding of the performance implications for UK DC pension fund investors who choose to combine global listed and UK unlisted real estate in a blended allocation relative to a pure unlisted solution.

Design/methodology/approach – Blended listed and unlisted real estate portfolios are constructed. Investor risk and returns are then studied over the full 15 year sample horizon and distinct cyclical phases over this period using a number of risk-return metrics. Performance is then contrasted with that of a pure unlisted solution, as well as UK equity market and bond total returns over the same period.

Findings – A UK DC pension fund investor choosing to construct a blended global listed and UK unlisted real estate portfolio would have experienced material return enhancement relative to a pure unlisted solution. The “price” of this enhanced performance and improved liquidity profile is, unsurprisingly, higher portfolio volatility. However, because of the improved returns, the impact upon measured risk adjusted returns is less significant.

Practical implications – Relatively liquid blended listed and unlisted real estate portfolios create efficient risk and return outcomes for investors.

Originality/value – This study uses actual fund rather than index data (i.e. measures delivered returns to investors), has chosen a global rather than single country listed real estate allocation and is focused on providing clarity around the real estate exposure for a specific investment requirement: the UK DC pension fund market.

Keywords: Finance, Portfolio management, Investment, Listed real estate, Pension fund, Unlisted real estate

JEL Classification: G11