The conditional performance of UK property funds

The evaluation of investment fund performance has been one of the main developments of modern portfolio theory. Most studies employ the technique developed by Jensen (1968) that compares a particular fund's returns to a benchmark portfolio of equal risk. However, the standard measures of fund manager performance are known to suffer from a number of problems in practice. In particular previous studies implicitly assume that the risk level of the portfolio is stationary through the evaluation period. That is unconditional measures of performance do not account for the fact that risk and expected returns may vary with the state of the economy. Therefore many of the problems encountered in previous performance studies reflect the inability of traditional measures to handle the dynamic behaviour of returns. As a consequence Ferson and Schadt (1996) suggest an approach to performance evaluation called conditional performance evaluation which is designed to address this problem. This paper utilises such a conditional measure of performance on a sample of 27 UK property funds, over the period 1987-1998. The results of which suggest that once the time varying nature of the funds beta is corrected for, by the addition of the market indicators, the average fund performance show an improvement over that of the traditional methods of analysis.

Domestic and foreign bias in global real estate mutual fund investment allocations

The purpose of the study is to seek a better understanding of the investment allocation behaviour of the real estate mutual funds by focusing on asset allocation at the country level. Analysing the country allocation of 553 real estate mutual funds domiciled in 20 countries, we attempt to trace how investment bias exists across countries and affects their country allocations. Our results evidence the existence of disproportionate country allocation to their domestic markets (domestic bias) and to each foreign market (foreign bias). We also find each bias is influenced by different sets of variables: real estate market influences for domestic bias and familiarity influences for foreign bias. This difference in factors influential for each bias in part explains the conflated relationship between the two biases.

Can company-fund manager meetings convey informational benefits? Exploring the rationalisation of equity investment decision making by UK fund managers

Conventional economic theory, applied to information released by listed companies, equates ‘useful’ with ‘price-sensitive’. Stock exchange rules accordingly prohibit the selec- tive, private communication of price-sensitive information. Yet, even in the absence of such communication, UK equity fund managers routinely meet privately with the senior execu- tives of the companies in which they invest. Moreover, they consider these brief, formal and formulaic meetings to be their most important sources of investment information. In this paper we ask how that can be. Drawing on interview and observation data with fund managers and CFOs, we find evidence for three, non-mutually exclusive explanations: that the characterisation of information in conventional economic theory is too restricted, that fund managers fail to act with the rationality that conventional economic theory assumes, and/or that the primary value of the meetings for fund managers is not related to their investment decision making but to the claims of superior knowledge made to clients in marketing their active fund management expertise. Our findings suggest a disconnect between economic theory and economic policy based on that theory, as well as a corre- sponding limitation in research studies that test information-usefulness by assuming it to be synonymous with price-sensitivity. We draw implications for further research into the role of tacit knowledge in equity investment decision-making, and also into the effects of the principal–agent relationship between fund managers and their clients.

Drivers of fund performance: a panel data analysis

The principle aim of this research is to elucidate the factors driving the total rate of return of non-listed funds using a panel data analytical framework. In line with previous results, we find that core funds exhibit lower yet more stable returns than value-added and, in particular, opportunistic funds, both cross-sectionally and over time. After taking into account overall market exposure, as measured by weighted market returns, the excess returns of value-added and opportunity funds are likely to stem from: high leverage, high exposure to development, active asset management and investment in specialized property sectors. A random effects estimation of the panel data model largely confirms the findings obtained from the fixed effects model. Again, the country and sector property effect shows the strongest significance in explaining total returns. The stock market variable is negative which hints at switching effects between competing asset classes. For opportunity funds, on average, the returns attributable to gearing are three times higher than those for value added funds and over five times higher than for core funds. Overall, there is relatively strong evidence indicating that country and sector allocation, style, gearing and fund size combinations impact on the performance of unlisted real estate funds.

Principal-agent issues in asset acquisition: UK institutions and their investment agents

This paper explores principal‐agent issues in the stock selection processes of institutional property investors. Drawing upon an interview survey of fund managers and acquisition professionals, it focuses on the relationships between principals and external agents as they engage in property transactions. The research investigated the extent to which the presence of outcome‐based remuneration structures could lead to biased advice, overbidding and/or poor asset selection. It is concluded that institutional property buyers are aware of incentives for opportunistic behaviour by external agents, often have sufficient expertise to robustly evaluate agents’ advice and that these incentives are counter‐balanced by a number of important controls on potential opportunistic behaviour. There are strong counter‐incentives in the need for the agents to establish personal relationships and trust between themselves and institutional buyers, to generate repeat and related business and to preserve or generate a good reputation in the market.

Judgments, forecasts and decisions: an analysis of fund managers over time

Decision theory is the study of models of judgement involved in, and leading to, deliberate and (usually) rational choice. In real estate investment there are normative models for the allocation of assets. These asset allocation models suggest an optimum allocation between the respective asset classes based on the investors’ judgements of performance and risk. Real estate is selected, as other assets, on the basis of some criteria, e.g. commonly its marginal contribution to the production of a mean variance efficient multi asset portfolio, subject to the investor’s objectives and capital rationing constraints. However, decisions are made relative to current expectations and current business constraints. Whilst a decision maker may believe in the required optimum exposure levels as dictated by an asset allocation model, the final decision may/will be influenced by factors outside the parameters of the mathematical model. This paper discusses investors' perceptions and attitudes toward real estate and highlights the important difference between theoretical exposure levels and pragmatic business considerations. It develops a model to identify “soft” parameters in decision making which will influence the optimal allocation for that asset class. This “soft” information may relate to behavioural issues such as the tendency to mirror competitors; a desire to meet weight of money objectives; a desire to retain the status quo and many other non-financial considerations. The paper aims to establish the place of property in multi asset portfolios in the UK and examine the asset allocation process in practice, with a view to understanding the decision making process and to look at investors’ perceptions based on an historic analysis of market expectation; a comparison with historic data and an analysis of actual performance.

Integration and segmentation in European investment services markets: assessing the implications for international real estate investment

This paper analyses developments in the growth and configuration of the institutional savings markets within the European Union. The paper discusses the changing socio-economic context in which investment services within the EU are being delivered. The is followed by an examination of drivers of market integration such as the growth and consolidation of the fund management industry, the demographic and fiscal pressures for reform of pensions markets and the process and effects of the deregulation of investment services markets. There is a review of outstanding sources of market segmentation. The projections for future growth in pensions are outlined and implications for real estate investment assessed. It is concluded that, although numerous imponderables render reliable quantitative projections problematic, growth and restructuring of the institutional savings market is likely to increase cross-border capital flows to real estate markets.

Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

Destination UK: international property investment and the role of taxation

This research examines whether or not foreign property investors enjoy tax and other advantages over their UK counterparts and how, if such advantages exists, UK quoted property companies can redress the balance. Current issues such as lack of liquidity, inequalities amongst asset classes, and differences in tax burden are examined in detail. The report will be of interest to property investment specialists, valuers, fund managers, institutional investors and their advisers.

Promoting resilience and protective factors in the Children's Fund: supporting children and young people's pathways towards social inclusion?

As part of the broader prevention and social inclusion agenda, concepts of risk, resilience, and protective factors inform a range of U.K. Government initiatives targeted towards children and young people in England, including Sure Start, the Children's Fund, On Track, and Connexions. This paper is based on findings from a large qualitative dataset of interviews conducted with children and their parents or caregiver who accessed Children's Fund services as part of National Evaluation of the Children's Fund research.1 Drawing on the notion of young people's trajectories, the paper discusses how Children's Fund services support children's and young people's pathways towards greater social inclusion. While many services help to build resilience and protective factors for individual children, the paper considers the extent to which services also promote resilience within the domains of the family, school, and wider community and, hence, attempt to tackle the complex, multi-dimensional aspects of social exclusion affecting children, young people, and their families.

Developing responsive preventative practices: key messages from children's and families' experiences of the Children's Fund

As part of the prevention and social inclusion agenda, the Children's Fund, set up in 2000, has developed preventative services for children at risk of social exclusion. Drawing on a large qualitative dataset of interviews conducted in 2004/05 with children, young people and their parents/carers who accessed Children Fund services, this article analyses key practices and approaches valued by children and parents. These included: specialist support tailored to individual support needs, family-oriented approaches, trusting relationships with service providers, multi-agency approaches and sustainability of services. Finally, the article draws out key lessons for the future development of preventative services.

Investment in preventing and preparing for biological emergencies and disasters: social and economic costs of disasters versus costs of surveillance and response preparedness

Biological emergencies such as the appearance of an exotic transboundary or emerging disease can become disasters. The question that faces Veterinary Services in developing countries is how to balance resources dedicated to active insurance measures, such as border control, surveillance, working with the governments of developing countries, and investing in improving veterinary knowledge and tools, with passive measures, such as contingency funds and vaccine banks. There is strong evidence that the animal health situation in developed countries has improved and is relatively stable. In addition, through trade with other countries, developing countries are becoming part of the international animal health system, the status of which is improving, though with occasional setbacks. However, despite these improvements, the risk of a possible biological disaster still remains, and has increased in recent times because of the threat of bioterrorism. This paper suggests that a model that combines decision tree analysis with epidemiology is required to identify critical points in food chains that should be strengthened to reduce the risk of emergencies and prevent emergencies from becoming disasters.

When are ant-attractant devices a worthwhile investment? Vicia faba extrafloral nectaries and Lasius niger ants

Most studies aiming to determine the beneficial effect of ants on plants simply consider the effects of the presence or exclusion of ants on plant yield. This approach is often inadequate, however, as ants interact with both non-tended herbivores and tended Homoptera. Moreover, the interaction with these groups of organisms is dependent on ant density, and these functional relationships are likely to be non-linear. A model is presented here that segregates plant herbivores into two categories depending on the sign of their numerical response to ants (myrmecophiles increase with ants, non-tended herbivores decline). The changes in these two components of herbivores with increasing ant density and the resulting implications for ant-plant mutualisms are considered. It emerges that a wide range of ant densities needs to be considered as the interaction sign (mutualism or parasitism) and strength is likely to change with ant density. The model is used to interpret the results of an experimental study that varied levels of Aphis fabae infestation and Lasius niger ant attendance on Vicia faba bean plants. Increasing ant density consistently reduced plant fitness and thus, in this location, the interaction between the ants and the plant can be considered parasitic. In the Vicia faba system, these costs of ants are unlikely to be offset by other beneficial agents (e.g., parasitoids), which also visit extrafloral nectaries.