Unveiling the Impact of SFDR on Private Equity Real Estate Funds: A J-Curve and Panel Regression Analysis

This paper examines the relationship between the Sustainable Finance Disclosure Regulation (SFDR) and private equity real estate (PERE) fund returns as measured by the IRR. The SFDR, which has been effective since 2021, applies to financial entities operating within the European market and is intended to provide market participants with a comprehensive understanding of the sustainability strategies and risks of financial products. While existing literature primarily focusing on the impact of voluntary sustainability disclosure (e.g., through certifications or reporting standards), this paper addresses a significant research gap by conducting a panel regression analysis on approximately 36 funds and examining the effects of different SFDR classifications on fund returns. The results are validated through a J-Curve analysis, which is constructed using cubic spline interpolation. A priori, the SFDR classification of Article 8 and 9 funds is supposed to be accompanied by higher costs compared to Article 6 funds. The findings indicate that a higher classification under the SFDR is not associated with detrimental effects on funds’ performance. Additionally, the results suggest that either upfront costs, such as due diligence on the acquired properties, do not differ significantly or higher costs are amortised after stabilisation of funds’ cash flow. This study, to the best of our knowledge, is the first quantitative examination of unlisted real estate fund performance under the SFDR and provides unique insights into J-Curves of PERE funds.