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.

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.

Inflammatory modulation of exercise salience: using hormesis to return to a healthy lifestyle

Most of the human population in the western world has access to unlimited calories and leads an increasingly sedentary lifestyle. The propensity to undertake voluntary exercise or indulge in spontaneous physical exercise, which might be termed "exercise salience", is drawing increased scientific attention. Despite its genetic aspects, this complex behaviour is clearly modulated by the environment and influenced by physiological states. Inflammation is often overlooked as one of these conditions even though it is known to induce a state of reduced mobility. Chronic subclinical inflammation is associated with the metabolic syndrome; a largely lifestyle-induced disease which can lead to decreased exercise salience. The result is a vicious cycle that increases oxidative stress and reduces metabolic flexibility and perpetuates the disease state. In contrast, hormetic stimuli can induce an anti-inflammatory phenotype, thereby enhancing exercise salience, leading to greater biological fitness and improved functional longevity. One general consequence of hormesis is upregulation of mitochondrial function and resistance to oxidative stress. Examples of hormetic factors include calorie restriction, extreme environmental temperatures, physical activity and polyphenols. The hormetic modulation of inflammation, and thus, exercise salience, may help to explain the highly heterogeneous expression of voluntary exercise behaviour and therefore body composition phenotypes of humans living in similar obesogenic environments.

Linear and non-linear transmission of equity return volatility: evidence from the US, Japan and Australia

This paper models the transmission of shocks between the US, Japanese and Australian equity markets. Tests for the existence of linear and non-linear transmission of volatility across the markets are performed using parametric and non-parametric techniques. In particular the size and sign of return innovations are important factors in determining the degree of spillovers in volatility. It is found that a multivariate asymmetric GARCH formulation can explain almost all of the non-linear causality between markets. These results have important implications for the construction of models and forecasts of international equity returns.

Individual assets, market structure and the drivers of return

Much UK research and market practice on portfolio strategy and performance benchmarking relies on a sector‐geography subdivision of properties. Prior tests of the appropriateness of such divisions have generally relied on aggregated or hypothetical return data. However, the results found in aggregate may not hold when individual buildings are considered. This paper makes use of a dataset of individual UK property returns. A series of multivariate exploratory statistical techniques are utilised to test whether the return behaviour of individual properties conforms to their a priori grouping. The results suggest strongly that neither standard sector nor regional classifications provide a clear demarcation of individual building performance. This has important implications for both portfolio strategy and performance measurement and benchmarking. However, there do appear to be size and yield effects that help explain return behaviour at the property level.

Development of a wind gust model to estimate gust speeds and their return periods

Spatially dense observations of gust speeds are necessary for various applications, but their availability is limited in space and time. This work presents an approach to help to overcome this problem. The main objective is the generation of synthetic wind gust velocities. With this aim, theoretical wind and gust distributions are estimated from 10 yr of hourly observations collected at 123 synoptic weather stations provided by the German Weather Service. As pre-processing, an exposure correction is applied on measurements of the mean wind velocity to reduce the influence of local urban and topographic effects. The wind gust model is built as a transfer function between distribution parameters of wind and gust velocities. The aim of this procedure is to estimate the parameters of gusts at stations where only wind speed data is available. These parameters can be used to generate synthetic gusts, which can improve the accuracy of return periods at test sites with a lack of observations. The second objective is to determine return periods much longer than the nominal length of the original time series by considering extreme value statistics. Estimates for both local maximum return periods and average return periods for single historical events are provided. The comparison of maximum and average return periods shows that even storms with short average return periods may lead to local wind gusts with return periods of several decades. Despite uncertainties caused by the short length of the observational records, the method leads to consistent results, enabling a wide range of possible applications.

Widespread supplementary feeding in domestic gardens explains the return of reintroduced Red Kites Milvus milvus to an urban area

Reintroductions are used worldwide to mitigate biodiversity loss. One prominent case is a charismatic raptor of conservation concern, the Red Kite Milvus milvus. This species has been reintroduced across the UK over the last 25 years following its near extinction after centuries of persecution. The species was not expected to recolonize urban areas; its historical association with human settlements is attributed to scavenging on human waste and refuse, a resource now greatly reduced on the streets of modern Western cities. However, the species has become a common day-time visitor to a large conurbation centred on the town of Reading, southern England, approximately 20 km from the first English reintroduction site. Given a near-absence of breeding and roost sites, we investigated foraging opportunities and habitat associations that might explain use by Red Kites of this urban area. Surveys of discarded human foods and road-kill suggested that these could support at most 13−29 kites/day. Face-to-face surveys of a cross-section of residents revealed that 4.5% (equivalent to 4349 households) provided supplementary food for kites. Using estimates of per-household resource provision from another study, we calculated that this level is potentially sufficient to provision 142−320 kites, a substantial proportion of the total estimated to visit the conurbation each day (between 140 and 440). Road transects found positive associations between Red Kites and residential areas. We therefore suggest that the decision made by thousands of individuals to provide supplementary food for Red Kites is the primary factor explaining their day-time abundance in this urban area.

Innovative approaches For enhancing the flow of funds into the Benefit Sharing Fund of the International Treaty on Plant Genetic Resources for Food and Agriculture: an evaluation of options

This report assesses the implications and revenue-generating potential of options for reform of the International Treaty on Plant Genetic Resources for Food and Agriculture in the context of the structure of the global seed industry and the emerging landscape of plant variety innovation for different crops. The implementation of these options would require modifications of Treaty and provisions of the Standard Material Transfer Agreements to alter the nature of payment obligations related to different categories of products, the payment rates under different options and the coverage of crops in Annex-I to the Treaty.

Return periods of losses associated with European windstorm series in a changing climate

Possible future changes of clustering and return periods (RPs) of European storm series with high potential losses are quantified. Historical storm series are identified using 40 winters of reanalysis. Time series of top events (1, 2 or 5 year return levels (RLs)) are used to assess RPs of storm series both empirically and theoretically. Additionally, 800 winters of general circulation model simulations for present (1960–2000) and future (2060–2100) climate conditions are investigated. Clustering is identified for most countries, and estimated RPs are similar for reanalysis and present day simulations. Future changes of RPs are estimated for fixed RLs and fixed loss index thresholds. For the former, shorter RPs are found for Western Europe, but changes are small and spatially heterogeneous. For the latter, which combines the effects of clustering and event ranking shifts, shorter RPs are found everywhere except for Mediterranean countries. These changes are generally not statistically significant between recent and future climate. However, the RPs for the fixed loss index approach are mostly beyond the range of pre-industrial natural climate variability. This is not true for fixed RLs. The quantification of losses associated with storm series permits a more adequate windstorm risk assessment in a changing climate.

The blended approach to real estate allocations: performance implications of combining an exposure to German Spezialfonds with Global Listed Real Estate Securities

This paper seeks to increase the understanding of the performance implications for investors who choose to combine an unlisted real estate portfolio (in this case German Spezialfonds) with a (global) listed real estate element. We call this a “blended” approach to real estate allocations. For the avoidance of doubt, in this paper we are dealing purely with real estate equity (listed and unlisted) allocations, and do not incorporate real estate debt (listed or unlisted) or direct property into the process. A previous paper (Moss and Farrelly 2014) showed the benefits of the blended approach as it applied to UK Defined Contribution Pension Schemes. The catalyst for this paper has been the recent attention focused on German pension fund allocations, which have a relatively low (real estate) equity content, and a high bond content. We have used the MSCI Spezialfonds Index as a proxy for domestic German institutional real estate allocations, and the EPRA Global Developed Index as a proxy for a global listed real estate allocation. We also examine whether a rules based trading strategy, in this case Trend Following, can improve the risk adjusted returns above those of a simple buy and hold strategy for our sample period 2004-2015. Our findings are that by blending a 30% global listed portfolio with a 70% allocation (as opposed to a typical 100% weighting) to Spezialfonds, the real estate allocation returns increase from 2.88% p.a. to 5.42% pa. Volatility increases, but only to 6.53%., but there is a noticeable impact on maximum drawdown which increases to 19.4%. By using a Trend Following strategy raw returns are improved from 2.88% to 6.94% p.a. , The Sharpe Ratio increases from 1.05 to 1.49 and the Maximum Drawdown ratio is now only 1.83% compared to 19.4% using a buy and hold strategy . Finally, adding this (9%) real estate allocation to a mixed asset portfolio allocation typical for German pension funds there is an improvement in both the raw return (from 7.66% to 8.28%) and the Sharpe Ratio (from 0.91 to 0.98).