Portfolio size and the reduction of dispersion: the case of the United Kingdom commercial real estate market

This paper investigates the potential benefits and limitations of equal and value-weighted diversification using as the example the UK institutional property market. To achieve this it uses the largest sample (392) of actual property returns that is currently available, over the period 1981 to 1996. To evaluate these issues two approaches are adopted; first, an analysis of the correlations within the sectors and regions and secondly simulations of property portfolios of increasing size constructed both naively and with value-weighting. Using these methods it is shown that the extent of possible risk reduction is limited because of the high positive correlations between assets in any portfolio, even when naively diversified. It is also shown that portfolios exhibit high levels of variability around the average risk, suggesting that previous work seriously understates the number of properties needed to achieve a satisfactory level of diversification. The results have implications for the development and maintenance of a property portfolio because they indicate that the achievable level of risk reduction depends upon the availability of assets, the weighting system used and the investor’s risk tolerance.

Asset allocation, cross-class correlation and the structure of property returns

Practical applications of portfolio optimisation tend to proceed on a “top down” basis where funds are allocated first at asset class level (between, say, bonds, cash, equities and real estate) and then, progressively, at sub-class level (within property to sectors, office, retail, industrial for example). While there are organisational benefits from such an approach, it can potentially lead to sub-optimal allocations when compared to a “global” or “side-by-side” optimisation. This will occur where there are correlations between sub-classes across the asset divide that are masked in aggregation – between, for instance, City offices and the performance of financial services stocks. This paper explores such sub-class linkages using UK monthly stock and property data. Exploratory analysis using clustering procedures and factor analysis suggests that property performance and equity performance are distinctive: there is little persuasive evidence of contemporaneous or lagged sub-class linkages. Formal tests of the equivalence of optimised portfolios using top-down and global approaches failed to demonstrate significant differences, whether or not allocations were constrained. While the results may be a function of measurement of market returns, it is those returns that are used to assess fund performance. Accordingly, the treatment of real estate as a distinct asset class with diversification potential seems justified.

Is there a place for property in the multi-asset portfolio?

The case for property has typically rested on the application of modern portfolio theory (MPT), in that property has been shown to offer increased diversification benefits within a multi asset portfolio without hurting portfolio returns especially for lower risk portfolios. However this view is based upon the use of historic, usually appraisal based, data for property. Recent research suggests strongly that such data significantly underestimates the risk characteristics of property, because appraisals explicitly or implicitly smooth out much of the real volatility in property returns. This paper examines the portfolio diversification effects of including property in a multi-asset portfolio, using UK appraisal based (smoothed) data and several derived de-smoothed series. Having considered the effects of de-smoothing, we then consider the inclusion of a further low risk asset (cash) in order to investigate further whether property's place in a low risk portfolio is maintained. The conclusions of this study are that the previous supposed benefits of including property have been overstated. Although property may still have a place in a 'balanced' institutional portfolio, the case for property needs to be reassessed and not be based simplistically on the application of MPT.

Changes in the relative importance of sector and regional Factors: 1987-2002

A stylised fact in the real estate portfolio diversification literature is that sector (property-type) effects are relatively more important than regional (geographical) factors in determining property returns. Thus, for those portfolio managers who follow a top-down approach to portfolio management, they should first choose in which sectors to invest and then select the best properties in each market. However, the question arises as to whether the dominance of the sector effects relative to regional effects is constant. If not property fund managers will need to take account of regional effects in developing their portfolio strategy. We find the results show that the sector-specific factors dominate the regional-specific factors for the vast majority of the time. Nonetheless, there are periods when the regional factors are of equal or greater importance than the sector effects. In particular, the sector effects tend to dominate during volatile periods of the real estate cycle; however, during calmer periods the sector and regional effects are of equal importance. These findings suggest that the sector effects are still the most important aspect in the development of an active portfolio strategy.

Family hardship and cultural values: child labor in Malian artisanal gold mining communities

This paper contributes to the debate on child labor in small-scale mining communities, focusing specifically on the situation in sub-Saharan Africa. It argues that the child labor now widespread in many of the region’s small-scale mining communities is a product of a combination of cultural issues, household-level poverty and rural livelihood diversification. Experiences from Komana West, a subsistence gold panning area in Southern Mali, are drawn upon to make this case. The findings suggest that the sector’s child labor “problem” is far more nuanced than international organizations and policymakers have diagnosed.

Agricultural adaptation to climate change: insights from a farming community in Sri Lanka

The vulnerability of smallholder farmers to climate change and variability is increasingly rising. As agriculture is the only source of income for most of them, agricultural adaptation with respect to climate change is vital for their sustenance and to ensure food security. In order to develop appropriate strategies and institutional responses, it is necessary to have a clear understanding of the farmers’ perception of climate change, actual adaptations at farm-level and what factors drive and constrain their decision to adapt. Thus, this study investigates the farm-level adaptation to climate change based on the case of a farming community in Sri Lanka. The findings revealed that farmers’ perceived the ongoing climate change based on their experiences. Majority of them adopted measures to address climate change and variability. These adaptation measures can be categorised into five groups, such as crop management, land management, irrigation management, income diversification, and rituals. The results showed that management of non-climatic factors was an important strategy to enhance farmers’ adaptation, particularly in a resource-constrained smallholder farming context. The results of regression analysis indicated that human cognition was an important determinant of climate change adaptation. Social networks were also found to significantly influence adaptation. The study also revealed that social barriers, such as cognitive and normative factors, are equally important as other economic barriers to adaptation. While formulating and implementing the adaptation strategies, this study underscored the importance of understanding socio-economic, cognitive and normative aspects of the local communities.

Can REDD+ reconcile local priorities and needs with global mitigation benefits? lessons from Angai Forest, Tanzania

The scope of the reducing emissions from deforestation and forest degradation (REDD) mechanism has broadened REDD+ to accommodate different country interests such as natural forests, protected areas, as well as forests under community-based management. In Tanzania the REDD+ mechanism is still under development and pilot projects are at an early stage. In this paper, we seek to understand how local priorities and needs could be met in REDD+ implementation and how these expectations match with global mitigation benefits. We examine the local priorities and needs in the use of land and forest resources in the Angai Villages Land Forest Reserve (AVLFR) in the Liwale District of Lindi Region in Tanzania. Primary data was collected in two villages, Mihumo and Lilombe, using semistructured key informant interviews and participatory rural appraisal methods. In addition, the key informant interviews were conducted with other village, district, and national level actors, as well as international donors. Findings show that in the two communities REDD+ is seen as something new and is generating new expectations among communities. However, the Angai villagers highlight three key priorities that have yet to be integrated into the design of REDD+: water scarcity, rural development, and food security. At the local level improved forest governance and sustainable management of forest resources have been identified as one way to achieve livelihood diversification. Although the national goals of REDD+ include poverty reduction, these goals are not necessarily conducive to the goals of these communities. There exist both structural and cultural limits to the ability of the Angai villages to implement these goals and to improve forestry governance. Given the vulnerability to current and future climate variability and change it will be important to consider how the AVLFR will be managed and for whose benefit?

‘Everyone now is concentrating on the mining’: drivers and implications of rural economic transition in the Eastern Region of Ghana

Artisanal and small-scale mining (ASM) is replacing smallholder farming as the principal income source in parts of rural Ghana. Structural adjustment policies have removed support for the country’s smallholders, devalued their produce substantially and stiffened competition with large-scale counterparts. Over one million people nationwide are now engaged in ASM. Findings from qualitative research in Ghana’s Eastern Region are drawn upon to improve understanding of the factors driving this pattern of rural livelihood diversification. The ASM sector and farming are shown to be complementary, contrary to common depictions in policy and academic literature.

Performance drivers of UK unlisted property funds

An unlisted property fund is a private investment vehicle which aims to provide direct property total returns and may also employ financial leverage which will accentuate performance. They have become a far more prevalent institutional property investment conduit since the early 2000’s. Investors have been primarily attracted to them due to the ease of executing a property exposure, both domestically and internationally, and for their diversification benefits given the capital intensive nature of constructing a well diversified commercial property investment portfolio. However, despite their greater prominence there has been little academic research conducted on the performance and risks of unlisted property fund investments. This can be attributed to a paucity of available data and limited time series where it exists. In this study we have made use of a unique dataset of institutional UK unlisted non-listed property funds over the period 2003Q4 to 2011Q4, using a panel modelling framework in order to determine the key factors which impact on fund performance. The sample provided a rich set of unlisted property fund factors including market exposures, direct property characteristics and the level of financial leverage employed. The findings from the panel regression analysis show that a small number of variables are able to account for the performance of unlisted property funds. These variables should be considered by investors when assessing the risk and return of these vehicles. The impact of financial leverage upon the performance of these vehicles through the recent global financial crisis and subsequent UK commercial property market downturn was also studied. The findings indicate a significant asymmetric effect of employing debt finance within unlisted property funds.

Multiple routes to mammalian diversity

The radiation of the mammals provides a 165-million-year test case for evolutionary theories of how species occupy and then fill ecological niches. It is widely assumed that species often diverge rapidly early in their evolution, and that this is followed by a longer, drawn-out period of slower evolutionary fine-tuning as natural selection fits organisms into an increasingly occupied niche space1,2. But recent studies have hinted that the process may not be so simple3–5. Here we apply statistical methods that automatically detect temporal shifts in the rate of evolution through time to a comprehensive mammalian phylogeny6 and data set7 of body sizes of 3,185 extant species. Unexpectedly, the majority of mammal species, including two of the most speciose orders (Rodentia and Chiroptera), have no history of substantial and sustained increases in the rates of evolution. Instead, a subset of the mammals has experienced an explosive increase (between 10- and 52-fold) in the rate of evolution along the single branch leading to the common ancestor of their monophyletic group (for example Chiroptera), followed by a quick return to lower or background levels. The remaining species are a taxonomically diverse assemblage showing a significant, sustained increase or decrease in their rates of evolution. These results necessarily decouple morphological diversification from speciation and suggest that the processes that give rise to the morphological diversity of a class of animals are far more free to vary than previously considered. Niches do not seem to fill up, and diversity seems to arise whenever, wherever and at whatever rate it is advantageous.

Dynamic capabilities in a sixth generation family firm: entrepreneurship and the Bibby Line

In this paper we draw on the theory of dynamic capabilities to examine development of the only surviving family-owned Liverpool shipping company. The Bibby Line was founded in 1807 to take advantage of the growing sea-trade based in Liverpool. The company remained in shipping until the mid-1960s, when a series of external crises led the owner, Derek Bibby, to begin a process of diversification. In the last 50 years, the Bibby Line has grown into a £1bn business with interests in retail, distribution and financial services as well as a continuing commitment to shipping. Our intention is to demonstrate how multigenerational ownership contributes to the creation of dynamic capabilities in family firms. The distinctive nature of Bibby as a long-standing family business is related to unique assets such as patient capital, flexible governance structures as well as the ability to mobilise social and human capital.

The changing nature of UK construction professional service firms

Professional services firms (PSFs) have been the subject of much attention in the literature in recent years, ranging across a number of distinct but related disciplines including economics, sociology, organization and management studies. Analysis has tended to concentrate on law and accounting firms in particular, and although there is a growing academic interest in construction/built environment professional services firms (CPSFs), these have received much less scrutiny. However, many of the changes taking place among PSFs – in particular, growth in firm size, moves towards external ownership and greater service/geographical diversification – are also taking place among the larger CPSFs. The CPSF sector is not especially well documented and there is little understanding of the motives for, and implications of, these changes in the firms, their clients and wider society. CPSFs are reviewed in the context of the more general PSF literature and a set of questions is posed for future research on CPSFs. These questions include the need to understand the implications of firm type on performance, the form of ownership that might confer the greatest financial benefits for different stakeholder groups, and the wider societal consequences of continuing growth in size and diversification of CPSFs.

Plant-symbiotic fungi as chemical engineers: multi-genome analysis of the Clavicipitaceae reveals dynamics of alkaloid Loci

The fungal family Clavicipitaceae includes plant symbionts and parasites that produce several psychoactive and bioprotective alkaloids. The family includes grass symbionts in the epichloae clade (Epichloë and Neotyphodium species), which are extraordinarily diverse both in their host interactions and in their alkaloid profiles. Epichloae produce alkaloids of four distinct classes, all of which deter insects, and some—including the infamous ergot alkaloids—have potent effects on mammals. The exceptional chemotypic diversity of the epichloae may relate to their broad range of host interactions, whereby some are pathogenic and contagious, others are mutualistic and vertically transmitted (seed-borne), and still others vary in pathogenic or mutualistic behavior. We profiled the alkaloids and sequenced the genomes of 10 epichloae, three ergot fungi (Claviceps species), a morning-glory symbiont (Periglandula ipomoeae), and a bamboo pathogen (Aciculosporium take), and compared the gene clusters for four classes of alkaloids. Results indicated a strong tendency for alkaloid loci to have conserved cores that specify the skeleton structures and peripheral genes that determine chemical variations that are known to affect their pharmacological specificities. Generally, gene locations in cluster peripheries positioned them near to transposon-derived, AT-rich repeat blocks, which were probably involved in gene losses, duplications, and neofunctionalizations. The alkaloid loci in the epichloae had unusual structures riddled with large, complex, and dynamic repeat blocks. This feature was not reflective of overall differences in repeat contents in the genomes, nor was it characteristic of most other specialized metabolism loci. The organization and dynamics of alkaloid loci and abundant repeat blocks in the epichloae suggested that these fungi are under selection for alkaloid diversification. We suggest that such selection is related to the variable life histories of the epichloae, their protective roles as symbionts, and their associations with the highly speciose and ecologically diverse cool-season grasses.

Convergent evolution of floral signals underlies the success of Neotropical orchids

The great majority of plant species in the tropics require animals to achieve pollination, but the exact role of floral signals in attraction of animal pollinators is often debated. Many plants provide a floral reward to attract a guild of pollinators, and it has been proposed that floral signals of non-rewarding species may converge on those of rewarding species to exploit the relationship of the latter with their pollinators. In the orchid family (Orchidaceae), pollination is almost universally animal-mediated, but a third of species provide no floral reward, which suggests that deceptive pollination mechanisms are prevalent. Here, we examine floral colour and shape convergence in Neotropical plant communities, focusing on certain food-deceptive Oncidiinae orchids (e.g. Trichocentrum ascendens and Oncidium nebulosum) and rewarding species of Malpighiaceae. We show that the species from these two distantly related families are often more similar in floral colour and shape than expected by chance and propose that a system of multifarious floral mimicry—a form of Batesian mimicry that involves multiple models and is more complex than a simple one model–one mimic system—operates in these orchids. The same mimetic pollination system has evolved at least 14 times within the species-rich Oncidiinae throughout the Neotropics. These results help explain the extraordinary diversification of Neotropical orchids and highlight the complexity of plant–animal interactions.

The effects of cross-border and cross-industry mergers and acquisitions on home-region and global multinational enterprises

We examine the effects of international and product diversification through mergers and acquisitions (M&As) on the firm's risk–return profile. We identify the rewards from different types of M&As and investigate whether becoming a global firm is a value-enhancing strategy. Drawing on the theoretical work of Vachani (Journal of International Business Studies, 22 (1991), pp. 307−222) and on Rugman and Verbeke's (Journal of International Business Studies, 35 (2004), pp. 3−18) metrics, we classify firms according to their degree of international and product diversification. To account for the endogeneity of M&As, we develop a panel vector autoregression. We find that global and host-region multinational enterprises benefit from cross-border M&As that reinforce their geographical footprint. Cross-industry M&As enhance the risk–return profile of home-region firms. This effect depends on the degree of product diversification. Hence there is no value-enhancing M&A strategy for home-region and bi-regional firms to become ‘truly global’.