Real Estate Fund Openings and Cannibalization

46 Pages Posted: 6 Oct 2015

See all articles by David H. Downs

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate; The Kornblau Institute

Steffen P. Sebastian

University of Regensburg - International Real Estate Business School (IREBS)

René-Ojas Woltering

University of Regensburg - International Real Estate Business School (IREBS)

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2015

Abstract

This paper examines the trade-offs in launching new real estate funds, specifically open-end, direct-property funds. This investment vehicle, which is designed to provide the risk-return benefits of private market real estate, is available to retail investors in a number of countries. At the same time, these funds are also subject to liquidity risk, because they hold an inherently illiquid asset in an open-end structure. This format presents fund-family managers with unique challenges, particularly with the decision to open new funds. The data consists of 2,127 German fund openings across 76 fund families in 12 asset classes over the 1992-2010 period. Including a wide range of asset classes allows for a comparison between real estate and other investment objectives. We find a substantial cannibalization effect across the existing real estate funds of a family, while we note the opposite effect – i.e., flows into existing funds increase following a fund opening within the same objective – for all other asset classes. Our analysis of fund opening determinants shows that inflows mitigate the cannibalization risk for new real estate funds. Additional evidence highlights the role of scale and scope economies in real estate fund openings. Overall, the results provide new insights into the relatively large size and small number of real estate funds when compared to mutual funds dedicated to other investment objectives.

Keywords: Real Estate, Fund Flows, Fund Openings, Cannibalization

JEL Classification: G11, G17, G29

Suggested Citation

Downs, David H. and Sebastian, Steffen P. and Woltering, René-Ojas, Real Estate Fund Openings and Cannibalization (August 12, 2015). Available at SSRN: https://ssrn.com/abstract=2664770 or http://dx.doi.org/10.2139/ssrn.2664770

David H. Downs (Contact Author)

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284-4000
United States

The Kornblau Institute ( email )

Richmond, VA 23284-4000
United States

Steffen P. Sebastian

University of Regensburg - International Real Estate Business School (IREBS) ( email )

Universitaetsstrasse 31
Regenburg, Bavaria 93040
Germany
+49(941)943-5081 (Phone)
+49(941)943-5082 (Fax)

HOME PAGE: http://www.irebs.de

René-Ojas Woltering

University of Regensburg - International Real Estate Business School (IREBS) ( email )

Universitaetsstrasse 31
Regenburg, Bavaria 93040
Germany

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