Aligning asset allocation and real estate investment: some lessons from the last cycle

Asset allocation is concerned with the development of multi--‐asset portfolio strategies that are likely to meet an investor’s objectives based on the interaction of expected returns, risk, correlation and implementation from a range of distinct asset classes or beta sources. Challenges associated with the discipline are often particularly significant in private markets. Specifically, composition differences between the ‘index’ or ‘benchmark’ universe and the investible universe mean that there can often be substantial and meaningful deviations between the investment characteristics implied in asset allocation decisions and those delivered by investment teams. For example, while allocation decisions are often based on relatively low--‐risk diversified real estate ‘equity’ exposure, implementation decisions frequently include exposure to higher risk forms of the asset class as well as investments in debt based instruments. These differences can have a meaningful impact on the contribution of the asset class to the overall portfolio and, therefore, lead to a potential misalignment between asset allocation decisions and implementation. Despite this, the key conclusion from this paper is not that real estate investors should become slaves to a narrowly defined mandate based on IPD / NCREIF or other forms of benchmark replication. The discussion suggests that such an approach would likely lead to the underutilization of real estate in multi--‐asset portfolio strategies. Instead, it is that to achieve asset allocation alignment, real estate exposure should be divided into multiple pools representing distinct forms of the asset class. In addition, the paper suggests that associated investment guidelines and processes should be collaborative and reflect the portfolio wide asset allocation objectives of each pool. Further, where appropriate they should specifically target potential for ‘additional’ beta or, more marginally, ‘alpha’.

Simulated and observed fluxes of sensible and latent heat and CO2 at the WLEF-TV tower using SiB2.5

Three years of meteorological data collected at the WLEF-TV tower were used to drive a revised version of the Simple Biosphere (SiB 2.5) Model. Physiological properties and vegetation phenology were specified from satellite imagery. Simulated fluxes of heat, moisture, and carbon were compared to eddy covariance measurements taken onsite as a means of evaluating model performance on diurnal, synoptic, seasonal, and interannual time scales. The model was very successful in simulating variations of latent heat flux when compared to observations, slightly less so in the simulation of sensible heat flux. The model overestimated peak values of sensible heat flux on both monthly and diurnal scales. There was evidence that the differences between observed and simulated fluxes might be linked to wetlands near the WLEF tower, which were not present in the SiB simulation. The model overestimated the magnitude of the net ecosystem exchange of CO2 in both summer and winter. Mid-day maximum assimilation was well represented by the model, but late afternoon simulations showed excessive carbon uptake due to misrepresentation of within-canopy shading in the model. Interannual variability was not well simulated because only a single year of satellite imagery was used to parameterize the model.

Power allocation strategies for distributed space-time codes in two-way relay networks

We study a two-way relay network (TWRN), where distributed space-time codes are constructed across multiple relay terminals in an amplify-and-forward mode. Each relay transmits a scaled linear combination of its received symbols and their conjugates,with the scaling factor chosen based on automatic gain control. We consider equal power allocation (EPA) across the relays, as well as the optimal power allocation (OPA) strategy given access to instantaneous channel state information (CSI). For EPA, we derive an upper bound on the pairwise-error-probability (PEP), from which we prove that full diversity is achieved in TWRNs. This result is in contrast to one-way relay networks, in which case a maximum diversity order of only unity can be obtained. When instantaneous CSI is available at the relays, we show that the OPA which minimizes the conditional PEP of the worse link can be cast as a generalized linear fractional program, which can be solved efficiently using the Dinkelback-type procedure.We also prove that, if the sum-power of the relay terminals is constrained, then the OPA will activate at most two relays.

Scattering by rough surfaces: the Dirichlet problem for the Helmholtz equation in a non-locally perturbed half-plane

We consider the Dirichlet boundary value problem for the Helmholtz equation in a non-locally perturbed half-plane, this problem arising in electromagnetic scattering by one-dimensional rough, perfectly conducting surfaces. We propose a new boundary integral equation formulation for this problem, utilizing the Green's function for an impedance half-plane in place of the standard fundamental solution. We show, at least for surfaces not differing too much from the flat boundary, that the integral equation is uniquely solvable in the space of bounded and continuous functions, and hence that, for a variety of incident fields including an incident plane wave, the boundary value problem for the scattered field has a unique solution satisfying the limiting absorption principle. Finally, a result of continuous dependence of the solution on the boundary shape is obtained.

The simulation of the opposing fluxes of latent heat and CO2 over various land-use types: coupling a gas exchange model to a mesoscale atmospheric model

A mesoscale meteorological model (FOOT3DK) is coupled with a gas exchange model to simulate surface fluxes of CO2 and H2O under field conditions. The gas exchange model consists of a C3 single leaf photosynthesis sub-model and an extended big leaf (sun/shade) sub-model that divides the canopy into sunlit and shaded fractions. Simulated CO2 fluxes of the stand-alone version of the gas exchange model correspond well to eddy-covariance measurements at a test site in a rural area in the west of Germany. The coupled FOOT3DK/gas exchange model is validated for the diurnal cycle at singular grid points, and delivers realistic fluxes with respect to their order of magnitude and to the general daily course. Compared to the Jarvis-based big leaf scheme, simulations of latent heat fluxes with a photosynthesis-based scheme for stomatal conductance are more realistic. As expected, flux averages are strongly influenced by the underlying land cover. While the simulated net ecosystem exchange is highly correlated with leaf area index, this correlation is much weaker for the latent heat flux. Photosynthetic CO2 uptake is associated with transpirational water loss via the stomata, and the resulting opposing surface fluxes of CO2 and H2O are reproduced with the model approach. Over vegetated surfaces it is shown that the coupling of a photosynthesis-based gas exchange model with the land-surface scheme of a mesoscale model results in more realistic simulated latent heat fluxes.

How do plants respond to nutrient shortage by biomass allocation?

Plants constantly sense the changes in their environment; when mineral elements are scarce, they often allocate a greater proportion of their biomass to the root system. This acclimatory response is a consequence of metabolic changes in the shoot and an adjustment of carbohydrate transport to the root. It has long been known that deficiencies of essential macronutrients (nitrogen, phosphorus, potassium and magnesium) result in an accumulation of carbohydrates in leaves and roots, and modify the shoot-to-root biomass ratio. Here, we present an update on the effects of mineral deficiencies on the expression of genes involved in primary metabolism in the shoot, the evidence for increased carbohydrate concentrations and altered biomass allocation between shoot and root, and the consequences of these changes on the growth and morphology of the plant root system.

Allocation of spatial attention to emotional stimuli depends upon arousal and not valence

Attentional allocation to emotional stimuli is often proposed to be driven by valence and in particular by negativity. However, many negative stimuli are also arousing leaving the question whether valence or arousal accounts for this effect. The authors examined whether the valence or the arousal level of emotional stimuli influences the allocation of spatial attention using a modified spatial cueing task. Participants responded to targets that were preceded by cues consisting of emotional pictures varying on arousal and valence. Response latencies showed that disengagement of spatial attention was slower for stimuli high in arousal than for stimuli low in arousal. The effect was independent of the valence of the pictures and not gender-specific. The findings support the idea that arousal affects the allocation of attention.

Risk allocation in a public–private partnership: a case study of construction and operation of kindergartens in Kazakhstan

In Kazakhstan, a transitional nation in Central Asia, the development of public–private partnerships (PPPs) is at its early stage and increasingly of strategic importance. This case study investigates risk allocation in an ongoing project: the construction and operation of 11 kindergartens in the city of Karaganda in the concession form for 14 years. Drawing on a conceptual framework of effective risk allocation, the study identifies principal PPP risks, provides a critical assessment of how and in what way each partner bears a certain risk, highlights the reasons underpinning risk allocation decisions and delineates the lessons learned. The findings show that the government has effectively transferred most risks to the private sector partner, whilst both partners share the demand risk of childcare services and the project default risk. The strong elements of risk allocation include clear assignment of parties’ responsibilities, streamlined financing schemes and incentives to complete the main project phases on time. However, risk allocation has missed an opportunity to create incentives for service quality improvements and take advantage of economies of scale. The most controversial element of risk allocation, as the study finds, is a revenue stream that an operator is supposed to receive from the provision of services unrelated to childcare, as neither partner is able to mitigate this revenue risk. The article concludes that in the kindergartens’ PPP, the government has achieved almost complete transfer of risks to the private sector partner. However, the costs of transfer are extensive government financial outlays that seriously compromise the PPP value for money.

A critical revision of the estimation of the latent heat flux from two-wavelength scintillometry

Simultaneous scintillometer measurements at multiple wavelengths (pairing visible or infrared with millimetre or radio waves) have the potential to provide estimates of path-averaged surface fluxes of sensible and latent heat. Traditionally, the equations to deduce fluxes from measurements of the refractive index structure parameter at the two wavelengths have been formulated in terms of absolute humidity. Here, it is shown that formulation in terms of specific humidity has several advantages. Specific humidity satisfies the requirement for a conserved variable in similarity theory and inherently accounts for density effects misapportioned through the use of absolute humidity. The validity and interpretation of both formulations are assessed and the analogy with open-path infrared gas analyser density corrections is discussed. Original derivations using absolute humidity to represent the influence of water vapour are shown to misrepresent the latent heat flux. The errors in the flux, which depend on the Bowen ratio (larger for drier conditions), may be of the order of 10%. The sensible heat flux is shown to remain unchanged. It is also verified that use of a single scintillometer at optical wavelengths is essentially unaffected by these new formulations. Where it may not be possible to reprocess two-wavelength results, a density correction to the latent heat flux is proposed for scintillometry, which can be applied retrospectively to reduce the error.

The effect of light exposure on the degradation of latent fingerprints on brass surfaces: the use of silver electroless deposition as a visualization technique

We have studied the degradation of sebaceous fingerprints on brass surfaces using silver electroless deposition (SED) as a visualization technique. We have stored fingerprints on brass squares either (i) in a locked dark cupboard or (ii) in glass-filtered natural daylight for periods of 3 h, 24 h, 1 week, 3 weeks, and 6 weeks. We find that fingerprints on brass surfaces degrade much more rapidly when kept in the light than they do under dark conditions with a much higher proportion of high-quality prints found after 3 or 6 weeks of aging when stored in the dark. This process is more marked than for similar fingerprints on black PVC surfaces. Identifiable prints can be achieved on brass surfaces using both SED and cyanoacrylate fuming (CFM). SED is quick and straightforward to perform. CFM is more time-consuming but is versatile and can be applied to a wider range of metal surfaces than SED, for example brass surfaces which have been coated by a lacquer.

Simulation of tree-ring widths with a model for primary production, carbon allocation, and growth

We present a simple, generic model of annual tree growth, called "T". This model accepts input from a first-principles light-use efficiency model (the "P" model). The P model provides values for gross primary production (GPP) per unit of absorbed photosynthetically active radiation (PAR). Absorbed PAR is estimated from the current leaf area. GPP is allocated to foliage, transport tissue, and fine-root production and respiration in such a way as to satisfy well-understood dimensional and functional relationships. Our approach thereby integrates two modelling approaches separately developed in the global carbon-cycle and forest-science literature. The T model can represent both ontogenetic effects (the impact of ageing) and the effects of environmental variations and trends (climate and CO2) on growth. Driven by local climate records, the model was applied to simulate ring widths during the period 1958–2006 for multiple trees of Pinus koraiensis from the Changbai Mountains in northeastern China. Each tree was initialised at its actual diameter at the time when local climate records started. The model produces realistic simulations of the interannual variability in ring width for different age cohorts (young, mature, and old). Both the simulations and observations show a significant positive response of tree-ring width to growing-season total photosynthetically active radiation (PAR0) and the ratio of actual to potential evapotranspiration (α), and a significant negative response to mean annual temperature (MAT). The slopes of the simulated and observed relationships with PAR0 and α are similar; the negative response to MAT is underestimated by the model. Comparison of simulations with fixed and changing atmospheric CO2 concentration shows that CO2 fertilisation over the past 50 years is too small to be distinguished in the ring-width data, given ontogenetic trends and interannual variability in climate.

Infrared and millimetre-wave scintillometry in the suburban environment – Part 2: Large-area sensible and latent heat fluxes

A millimetre-wave scintillometer was paired with an infrared scintillometer, enabling estimation of large-area evapotranspiration across northern Swindon, a suburban area in the UK. Both sensible and latent heat fluxes can be obtained using this "two-wavelength" technique, as it is able to provide both temperature and humidity structure parameters, offering a major advantage over conventional single-wavelength scintillometry. The first paper of this two-part series presented the measurement theory and structure parameters. In this second paper, heat fluxes are obtained and analysed. These fluxes, estimated using two-wavelength scintillometry over an urban area, are the first of their kind. Source area modelling suggests the scintillometric fluxes are representative of 5–10 km2. For comparison, local-scale (0.05–0.5 km2) fluxes were measured by an eddy covariance station. Similar responses to seasonal changes are evident at the different scales but the energy partitioning varies between source areas. The response to moisture availability is explored using data from 2 consecutive years with contrasting rainfall patterns (2011–2012). This extensive data set offers insight into urban surface-atmosphere interactions and demonstrates the potential for two-wavelength scintillometry to deliver fluxes over mixed land cover, typically representative of an area 1–2 orders of magnitude greater than for eddy covariance measurements. Fluxes at this scale are extremely valuable for hydro-meteorological model evaluation and assessment of satellite data products