How important is the manager in private equity real estate funds? Empirical evidence on fund returns from the European markets

The managers are in a key role in a private equity real estate fund, and it has been suggested that the manager’s abilities or characteristics might be the factor explaining the large variation between the returns of the funds. In this paper, we extend the literature on manager’s role on private equity real estate fund returns in two ways using fund-level cash flow data on European private equity real estate funds. First, we analyse the effects of the manager characteristics on fund returns. Second, we analyze performance persistence, where earlier research on both non-real estate and real estate private equity funds suggests that the returns of the current fund are positively correlated to the returns of the past fund as well as to fund size and growth, whereas fund returns are negatively correlated to the sequence number of the fund indicating that emerging managers deliver superior returns over seasoned managers. Late findings in the non-real estate private equity area, however, suggest that the persistence only prevails in pre-2000 data for non-real estate private equity, indicating that the phenomenon might have been due to the lack of maturity in the sector.