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).

THE GEMINI NICI PLANET-FINDING CAMPAIGN: DISCOVERY OF A SUBSTELLAR L DWARF COMPANION TO THE NEARBY YOUNG M DWARF CD-35 2722

We present the discovery of a wide (67 AU) substellar companion to the nearby (21 pc) young solar-metallicity M1 dwarf CD-35 2722, a member of the approximate to 100 Myr AB Doradus association. Two epochs of astrometry from the NICI Planet-Finding Campaign confirm that CD-35 2722 B is physically associated with the primary star. Near-IR spectra indicate a spectral type of L4 +/- 1 with a moderately low surface gravity, making it one of the coolest young companions found to date. The absorption lines and near-IR continuum shape of CD-35 2722 B agree especially well the dusty field L4.5 dwarf 2MASS J22244381-0158521, while the near-IR colors and absolute magnitudes match those of the 5 Myr old L4 planetary-mass companion, 1RXS J160929.1-210524 b. Overall, CD-35 2722 B appears to be an intermediate-age benchmark for L dwarfs, with a less peaked H-band continuum than the youngest objects and near-IR absorption lines comparable to field objects. We fit Ames-Dusty model atmospheres to the near-IR spectra and find T(eff) = 1700-1900 K and log(g) = 4.5 +/- 0.5. The spectra also show that the radial velocities of components A and B agree to within +/- 10 km s(-1), further confirming their physical association. Using the age and bolometric luminosity of CD-35 2722 B, we derive a mass of 31 +/- 8 M(Jup) from the Lyon/Dusty evolutionary models. Altogether, young late-M to mid-L type companions appear to be overluminous for their near-IR spectral type compared with field objects, in contrast to the underluminosity of young late-L and early-T dwarfs.