Does active management add any value?

The question as to whether active management adds any value above that of the funds investment policy is one of continual interest to investors. In order to investigate this issue in the UK real estate market we examine a number of related questions. First, how much return variability is explained by investment policy? Second, how similar are the policies across funds? Third, how much of a fund’s return is determined by investment policy? Finally, how was this added value achieved? Using data for 19 real estate funds we find that investment policy explains less than half of the variability in returns over time, nothing of the variation across funds and that more than 100% of a level of return is attributed to investment policy. The results also show UK real estate fund focus exclusively on trying to pick winners to add value and that in pursuit of active return fund mangers incur high tracking error risk, consequently, successful active management is very difficult to achieve. In addition, the results are dependent on the benchmark used to represent the investment policy of the fund. Nonetheless, active management can indeed add value to a real estate funds performance. This is the good news. The bad news is adding value is much more difficult to achieve than is generally accepted.

The inflation hedging characteristics of US and UK investments: a multi-factor error correction approach

Historic analysis of the inflation hedging properties of stocks produced anomalous results, with equities often appearing to offer a perverse hedge against inflation. This has been attributed to the impact of real and monetary shocks to the economy, which influence both inflation and asset returns. It has been argued that real estate should provide a better hedge: however, empirical results have been mixed. This paper explores the relationship between commercial real estate returns (from both private and public markets) and economic, fiscal and monetary factors and inflation for US and UK markets. Comparative analysis of general equity and small capitalisation stock returns in both markets is carried out. Inflation is subdivided into expected and unexpected components using different estimation techniques. The analyses are undertaken using long-run error correction techniques. In the long-run, once real and monetary variables are included, asset returns are positively linked to anticipated inflation but not to inflation shocks. Adjustment processes are, however, gradual and not within period. Real estate returns, particularly direct market returns, exhibit characteristics that differ from equities.

Monetary integration and real estate markets: an investigation of the impact of the introduction of a single currency on real estate performance

This paper assesses the impact of the monetary integration on different types of stock returns in Europe. In order to isolate European factors, the impact of global equity integration and small cap factors are investigated. European countries are sub-divided according to the process of monetary convergence. Analysis shows that national equity indices are strongly influenced by global market movements, with a European stock factor providing additional explanatory power. The global and European factors explain small cap and real estate stocks much less well –suggesting an increased importance of ‘local’ drivers. For real estate, there are notable differences between core and non-core countries. Core European countries exhibit convergence – a convergence to a European rather than a global factor. The non-core countries do not seem to exhibit common trends or movements. For the non-core countries, monetary integration has been associated with increased dispersion of returns, lower correlation and lower explanatory power of a European factor. It is concluded that this may be explained by divergence in underlying macro-economic drivers between core and non-core countries in the post-Euro period.

Spectro-electrochemical and DFT studies of a planar Cu(II)–phenolate complex active in the aerobic oxidation of primary alcohols

A square-planar compound [Cu(pyrimol)Cl] (pyrimol = 4-methyl-2-N-(2-pyridylmethylene)aminophenolate) abbreviated as CuL–Cl) is described as a biomimetic model of the enzyme galactose oxidase (GOase). This copper(II) compound is capable of stoichiometric aerobic oxidation of activated primary alcohols in acetonitrile/water to the corresponding aldehydes. It can be obtained either from Hpyrimol (HL) or its reduced/hydrogenated form Hpyramol (4-methyl-2-N-(2-pyridylmethyl)aminophenol; H2L) readily converting to pyrimol (L-) on coordination to the copper(II) ion. Crystalline CuL–Cl and its bromide derivative exhibit a perfect square-planar geometry with Cu–O(phenolate) bond lengths of 1.944(2) and 1.938(2) Å. The cyclic voltammogram of CuL–Cl exhibits an irreversible anodic wave at +0.50 and +0.57 V versus ferrocene/ferrocenium (Fc/Fc+) in dry dichloromethane and acetonitrile, respectively, corresponding to oxidation of the phenolate ligand to the corresponding phenoxyl radical. In the strongly donating acetonitrile the oxidation path involves reversible solvent coordination at the Cu(II) centre. The presence of the dominant CuII–L. chromophore in the electrochemically and chemically oxidised species is evident from a new fairly intense electronic absorption at 400–480 nm ascribed to a several electronic transitions having a mixed pi-pi(L.) intraligand and Cu–Cl -> L. charge transfer character. The EPR signal of CuL–Cl disappears on oxidation due to strong intramolecular antiferromagnetic exchange coupling between the phenoxyl radical ligand (L.) and the copper(II) centre, giving rise to a singlet ground state (S = 0). The key step in the mechanism of the primary alcohol oxidation by CuL–Cl is probably the alpha-hydrogen abstraction from the equatorially bound alcoholate by the phenoxyl moiety in the oxidised pyrimol ligand, Cu–L., through a five-membered cyclic transition state.

Making the least active pay: a simulation of rewards and penalties under Demand Side Participation programs

The orthodox approach for incentivising Demand Side Participation (DSP) programs is that utility losses from capital, installation and planning costs should be recovered under financial incentive mechanisms which aim to ensure that utilities have the right incentives to implement DSP activities. The recent national smart metering roll-out in the UK implies that this approach needs to be reassessed since utilities will recover the capital costs associated with DSP technology through bills. This paper introduces a reward and penalty mechanism focusing on residential users. DSP planning costs are recovered through payments from those consumers who do not react to peak signals. Those consumers who do react are rewarded by paying lower bills. Because real-time incentives to residential consumers tend to fail due to the negligible amounts associated with net gains (and losses) or individual users, in the proposed mechanism the regulator determines benchmarks which are matched against responses to signals and caps the level of rewards/penalties to avoid market distortions. The paper presents an overview of existing financial incentive mechanisms for DSP; introduces the reward/penalty mechanism aimed at fostering DSP under the hypothesis of smart metering roll-out; considers the costs faced by utilities for DSP programs; assesses linear rate effects and value changes; introduces compensatory weights for those consumers who have physical or financial impediments; and shows findings based on simulation runs on three discrete levels of elasticity.