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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.

Suggested Citation

  • 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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    Keywords

    Pension fund; Real estate; Delegated investment management; Economies of scale; Performance;

    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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