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A Survey of Pension Fund Real Estate Portfolio Risk Management Practices


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    Institutional real estate investmentÐÐprimarily pension reserve assetsÐÐgrew rapidly in the 1980s. The fiduciary demands of a growing asset pool coupled with disappointing results in the latter half of the decade led to an increasing interest in the application of Modern Portfolio Theory (MPT) to the management of large-scale real estate portfolios. This paper reports the results of a study conducted in mid-1990 that surveyed the 426 largest institutional portfolios on portfolio management practices relating to diversification strategies, risk measurement, and evaluation of investment returns. The survey replicated several measures gathered by Webb in a 1983 survey to assess the rate of acceptance or utilization of ideas and techniques in the portfolio management community. Results indicate that change is perhaps slower than might be expected. Real estate performance measures have become more sophisticated in the past seven years with a shift away from accounting type measures toward fully discounted measures, including several variations on the Internal Rate of Return (IRR). Risk-adjustment techniques have changed to the extent that portfolio managers have a greater likelihood of using sensitivity analysis, but few other innovations are widespread. Only a small percentage of respondents use traditional tools of MPT-based analysis, but the majority are cognizant of the recent developments in the literature that attempt to show alternative methodologies for achieving true diversification within real estate portfolios. The results indicate that change is gradual and that some practices that have been discredited in the academic literature for many years may still be evident in the institutional community.

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    Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

    Volume (Year): 7 (1992)
    Issue (Month): 4 ()
    Pages: 361-374

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    Handle: RePEc:jre:issued:v:7:n:4:1992:p:361-374

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323

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    1. David J. Hartzell & James R. Webb, 1988. "Real Estate Risk and Return Expectations: Recent Survey Results," Journal of Real Estate Research, American Real Estate Society, vol. 3(3), pages 31-37.
    2. David J. Hartzell & David G. Shulma & Vice President, 1987. "Refining the Analysis of Regional Diversification for Income-Producing Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 2(2), pages 85-95.
    3. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
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    Cited by:
    1. SeungHan Ro & Alan Ziobrowski, 2011. "Does Focus Really Matter? Specialized vs. Diversified REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 42(1), pages 68-83, January.
    2. Pfnür, Andreas & Armonat, Stefan, 2001. "Immobilienkapitalanlage institutioneller Investoren – Risikomanagement und Portfolioplanung," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35586, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    3. Armonat, Stefan & Pfnür, Andreas, 2002. "Basel II and the German credit crunch?," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35585, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    4. Barry Ziering & Elaine M. Worzala, 1997. "The Real Estate Research Interests of the Plan Sponsor Community: Survey Results," Journal of Real Estate Research, American Real Estate Society, vol. 13(2), pages 115-144.
    5. Dirk P.M. De Wit, 1996. "Real Estate Portfolio Management Practices of Pension Funds and Insurance Companies in the Netherlands: A Survey," Journal of Real Estate Research, American Real Estate Society, vol. 11(2), pages 131-148.
    6. McCann, Philip & Lee, Stephen, 2005. "The Implications for Regional Investment of Diversification Strategies in CommercialR eal Estate Portfolios," ERES eres2005_254, European Real Estate Society (ERES).


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