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Intermediated investment management in private markets: Evidence from pension fund investments in real estate

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  • Andonov, Aleksandar
  • Eichholtz, Piet
  • Kok, Nils

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.

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  • Andonov, Aleksandar & Eichholtz, Piet & Kok, Nils, 2015. "Intermediated investment management in private markets: Evidence from pension fund investments in real estate," Journal of Financial Markets, Elsevier, vol. 22(C), pages 73-103.
    • Handle: RePEc:eee:finmar:v:22:y:2015:i:c:p:73-103
    DOI: 10.1016/j.finmar.2014.11.002
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    Cited by:

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    3. Ghent, Andra C., 2021. "What’s wrong with Pittsburgh? Delegated investors and liquidity concentration," Journal of Financial Economics, Elsevier, vol. 139(2), pages 337-358.
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    5. Jansen, Kristy, 2021. "Essays on institutional investors, portfolio choice, and asset prices," Other publications TiSEM fd998408-d282-4e0f-b542-4, Tilburg University, School of Economics and Management.
    6. Han, Min-Yeon & Jun, Sang-Gyung & Oh, Ji Yeol Jimmy & Kang, Hyoung-Goo, 2023. "Who should choose the money managers? Institutional sponsors' equity manager performance," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    7. Avis Devine & Andrew Sanderford & Chongyu Wang, 2024. "Sustainability and Private Equity Real Estate Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 161-187, February.
    8. Bing Zhu & Colin Lizieri, 2021. "Connected markets through global real estate investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 618-654, September.
    9. Laurens Defau & Lieven De Moor, 2021. "The investment behaviour of pension funds in alternative assets: Interest rates and portfolio diversification," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 1424-1434, January.
    10. Zhu, Bing & van Dijk, Dorinth & Lizieri, Colin, 2024. "Price diffusion across international private commercial real estate markets," Journal of International Money and Finance, Elsevier, vol. 140(C).

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    More about this item

    Keywords

    Pension fund; Real estate; Delegated investment management; Economies of scale; Performance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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