Persistently Poor Performance in Private Equity Real Estate

50 Pages Posted: 14 May 2023

See all articles by Timothy J. Riddiough

Timothy J. Riddiough

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Da Li

University of Wisconsin - Madison

Date Written: May 3, 2023

Abstract

We compare Buyout (BO), Venture Capital (VC), and Private Equity Real Estate (RE) funds. RE funds underperform BO and VC, as well as the public market alternative. In RE, worse-performing fund managers survive at a high rate. They are also susceptible to diseconomies of fund scale, with no skill-based persistence to offset the negative scale effects. Analysis of noisy fund manager selection indicates that RE investors are not disadvantaged relative to BO and VC. LP investors in RE funds seem to be optimizing something other than, or in addition to, investment return when selecting fund managers.

Keywords: Alternative investments, Pension fund investment, Private equity, Buyout, Venture capital, Real estate, Performance, Skill, Persistence, Exit, Survival, Tournament

JEL Classification: C11, D02, D40, G20, G23, G24, L10, R51

Suggested Citation

Riddiough, Timothy J. and Li, Da, Persistently Poor Performance in Private Equity Real Estate (May 3, 2023). Available at SSRN: https://ssrn.com/abstract=4437519 or http://dx.doi.org/10.2139/ssrn.4437519

Timothy J. Riddiough (Contact Author)

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-3531 (Phone)
608-265-2738 (Fax)

Da Li

University of Wisconsin - Madison

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