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’.

Numerical study of a M-cycle cross-flow heat exchanger for indirect evaporative cooling

In this paper, numerical analyses of the thermal performance of an indirect evaporative air cooler incorporating a M-cycle cross-flow heat exchanger has been carried out. The numerical model was established from solving the coupled governing equations for heat and mass transfer between the product and working air, using the finite-element method. The model was developed using the EES (Engineering Equation Solver) environment and validated by published experimental data. Correlation between the cooling (wet-bulb) effectiveness, system COP and a number of air flow/exchanger parameters was developed. It is found that lower channel air velocity, lower inlet air relative humidity, and higher working-to-product air ratio yielded higher cooling effectiveness. The recommended average air velocities in dry and wet channels should not be greater than 1.77 m/s and 0.7 m/s, respectively. The optimum flow ratio of working-to-product air for this cooler is 50%. The channel geometric sizes, i.e. channel length and height, also impose significant impact to system performance. Longer channel length and smaller channel height contribute to increase of the system cooling effectiveness but lead to reduced system COP. The recommend channel height is 4 mm and the dimensionless channel length, i.e., ratio of the channel length to height, should be in the range 100 to 300. Numerical study results indicated that this new type of M-cycle heat and mass exchanger can achieve 16.7% higher cooling effectiveness compared with the conventional cross-flow heat and mass exchanger for the indirect evaporative cooler. The model of this kind is new and not yet reported in literatures. The results of the study help with design and performance analyses of such a new type of indirect evaporative air cooler, and in further, help increasing market rating of the technology within building air conditioning sector, which is currently dominated by the conventional compression refrigeration technology.

Comparative study of the performance of the M-cycle counter-flow and cross-flow heat exchangers for indirect evaporative cooling - paving the path towards sustainable cooling of buildings

This paper provides a comparative study of the performance of cross-flow and counter-flow M-cycle heat exchangers for dew point cooling. It is recognised that evaporative cooling systems offer a low energy alternative to conventional air conditioning units. Recently emerged dew point cooling, as the renovated evaporative cooling configuration, is claimed to have much higher cooling output over the conventional evaporative modes owing to use of the M-cycle heat exchangers. Cross-flow and counter-flow heat exchangers, as the available structures for M-cycle dew point cooling processing, were theoretically and experimentally investigated to identify the difference in cooling effectiveness of both under the parallel structural/operational conditions, optimise the geometrical sizes of the exchangers and suggest their favourite operational conditions. Through development of a dedicated computer model and case-by-case experimental testing and validation, a parametric study of the cooling performance of the counter-flow and cross-flow heat exchangers was carried out. The results showed the counter-flow exchanger offered greater (around 20% higher) cooling capacity, as well as greater (15%–23% higher) dew-point and wet-bulb effectiveness when equal in physical size and under the same operating conditions. The cross-flow system, however, had a greater (10% higher) Energy Efficiency (COP). As the increased cooling effectiveness will lead to reduced air volume flow rate, smaller system size and lower cost, whilst the size and cost are the inherent barriers for use of dew point cooling as the alternation of the conventional cooling systems, the counter-flow system is considered to offer practical advantages over the cross-flow system that would aid the uptake of this low energy cooling alternative. In line with increased global demand for energy in cooling of building, largely by economic booming of emerging developing nations and recognised global warming, the research results will be of significant importance in terms of promoting deployment of the low energy dew point cooling system, helping reduction of energy use in cooling of buildings and cut of the associated carbon emission.

Climate warming–related strengthening of the tropical hydrological cycle

The authors estimate climate warming–related twenty-first-century changes of moisture transports from the descending into the ascending regions in the tropics. Unlike previous studies that employ time and space averaging, here homogeneous high horizontal and vertical resolution data from an Intergovernmental Panel on Climate Change Fourth Assessment Report (IPCC AR4) climate model are used. This allows for estimating changes in much greater detail (e.g., the estimation of the distribution of ascending and descending regions, changes in the vertical profile, and separating changes of the inward and outward transports). Low-level inward and midlevel outward moisture transports of the convective regions in the tropics are found to increase in a simulated anthropogenically warmed climate as compared to a simulated twentieth-century atmosphere, indicating an intensification of the hydrological cycle. Since an increase of absolute inward transport exceeds the absolute increase of outward transport, the resulting budget is positive, meaning that more water is projected to converge in the moist tropics. The intensification is found mainly to be due to the higher amount of water in the atmosphere, while the contribution of weakening wind counteracts this response marginally. In addition the changing statistical properties of the vertical profile of the moisture transport are investigated and the importance of the substantial outflow of moisture from the moist tropics at midlevels is demonstrated.

Physically consistent responses of the global atmospheric hydrological cycle in models and observations

Robust and physically understandable responses of the global atmospheric water cycle to a warming climate are presented. By considering interannual responses to changes in surface temperature (T), observations and AMIP5 simulations agree on an increase in column integrated water vapor at the rate 7 %/K (in line with the Clausius­Clapeyron equation) and of precipitation at the rate 2-­3 %/K (in line with energetic constraints). Using simple and complex climate models, we demonstrate that radiative forcing by greenhouse gases is currently suppressing global precipitation (P) at ~ -0.15 %/decade. Along with natural variability, this can explain why observed trends in global P over the period 1988-2008 are close to zero. Regional responses in the global water cycle are strongly constrained by changes in moisture fluxes. Model simulations show an increased moisture flux into the tropical wet region at 900 hPa and an enhanced outflow (of smaller magnitude) at around 600 hPa with warming. Moisture transport explains an increase in P in the wet tropical regions and small or negative changes in the dry regions of the subtropics in CMIP5 simulations of a warming climate. For AMIP5 simulations and satellite observations, the heaviest 5-day rainfall totals increase in intensity at ~15 %/K over the ocean with reductions at all percentiles over land. The climate change response in CMIP5 simulations shows consistent increases in P over ocean and land for the highest intensities, close to the Clausius-Clapeyron scaling of 7 %/K, while P declines for the lowest percentiles, indicating that interannual variability over land may not be a good proxy for climate change. The local changes in precipitation and its extremes are highly dependent upon small shifts in the large-scale atmospheric circulation and regional feedbacks.

Modelling the diurnal cycle of tropical convection across the "Grey Zone"

We present the results of simulations carried out with the Met Office Unified Model at 12km, 4km and 1.5km resolution for a large region centred on West Africa using several different representations of the convection processes. These span the range of resolutions from much coarser than the size of the convection processes to the cloud-system resolving and thus encompass the intermediate "grey-zone". The diurnal cycle in the extent of convective regions in the models is tested against observations from the Geostationary Earth Radiation Budget instrument on Meteosat-8. By this measure, the two best-performing simulations are a 12km model without convective parametrization, using Smagorinsky style sub-grid scale mixing in all three dimensions and a 1.5km simulations with two-dimensional Smagorinsky mixing. Of these, the 12km model produces a better match to the magnitude of the total cloud fraction but the 1.5km results in better timing for its peak value. The results suggest that the previously-reported improvement in the representation of the diurnal cycle of convective organisation in the 4km model compared to the standard 12km configuration is principally a result of the convection scheme employed rather than the improved resolution per se. The details of and implications for high-resolution model simulations are discussed.

The global atmospheric water cycle

Water vapour plays a key role in the Earth's energy balance. Almost 50% of the absorbed solar radiation at the surface is used to cool the surface, through evaporation, and warm the atmosphere, through release of latent heat. Latent heat is the single largest factor in warming the atmosphere and in transporting heat from low to high latitudes. Water vapour is also the dominant greenhouse gas and contributes to a warming of the climate system by some 24°C (Kondratev 1972). However, water vapour is a passive component in the troposphere as it is uniquely determined by temperature and should therefore be seen as a part of the climate feedback system. In this short overview, we will first describe the water on planet Earth and the role of the hydrological cycle: the way water vapour is transported between oceans and continents and the return of water via rivers to the oceans. Generally water vapour is well observed and analysed; however, there are considerable obstacles to observing precipitation, in particular over the oceans. The response of the hydrological cycle to global warming is far reaching. Because different physical processes control the change in water vapour and evaporation/precipitation, this leads to a more extreme distribution of precipitation making, in general, wet areas wetter and dry areas dryer. Another consequence is a transition towards more intense precipitation. It is to be expected that the changes in the hydrological cycle as a consequence of climate warming may be more severe that the temperature changes.

Transient climate change simulations with a coupled atmosphere–ocean GCM including the tropospheric sulfur cycle

The time-dependent climate response to changing concentrations of greenhouse gases and sulfate aerosols is studied using a coupled general circulation model of the atmosphere and the ocean (ECHAM4/OPYC3). The concentrations of the well-mixed greenhouse gases like CO2, CH4, N2O, and CFCs are prescribed for the past (1860–1990) and projected into the future according to International Panel on Climate Change (IPCC) scenario IS92a. In addition, the space–time distribution of tropospheric ozone is prescribed, and the tropospheric sulfur cycle is calculated within the coupled model using sulfur emissions of the past and projected into the future (IS92a). The radiative impact of the aerosols is considered via both the direct and the indirect (i.e., through cloud albedo) effect. It is shown that the simulated trend in sulfate deposition since the end of the last century is broadly consistent with ice core measurements, and the calculated radiative forcings from preindustrial to present time are within the uncertainty range estimated by IPCC. Three climate perturbation experiments are performed, applying different forcing mechanisms, and the results are compared with those obtained from a 300-yr unforced control experiment. As in previous experiments, the climate response is similar, but weaker, if aerosol effects are included in addition to greenhouse gases. One notable difference to previous experiments is that the strength of the Indian summer monsoon is not fundamentally affected by the inclusion of aerosol effects. Although the monsoon is damped compared to a greenhouse gas only experiment, it is still more vigorous than in the control experiment. This different behavior, compared to previous studies, is the result of the different land–sea distribution of aerosol forcing. Somewhat unexpected, the intensity of the global hydrological cycle becomes weaker in a warmer climate if both direct and indirect aerosol effects are included in addition to the greenhouse gases. This can be related to anomalous net radiative cooling of the earth’s surface through aerosols, which is balanced by reduced turbulent transfer of both sensible and latent heat from the surface to the atmosphere.

Numerical modelling of the energy and water cycle of the Baltic Sea

This paper will introduce the Baltex research programme and summarize associated numerical modelling work which has been undertaken during the last five years. The research has broadly managed to clarify the main mechanisms determining the water and energy cycle in the Baltic region, such as the strong dependence upon the large scale atmospheric circulation. It has further been shown that the Baltic Sea has a positive water balance, albeit with large interannual variations. The focus on the modelling studies has been the use of limited area models at ultra-high resolution driven by boundary conditions from global models or from reanalysis data sets. The programme has further initiated a comprehensive integration of atmospheric, land surface and hydrological modelling incorporating snow, sea ice and special lake models. Other aspects of the programme include process studies such as the role of deep convection, air sea interaction and the handling of land surface moisture. Studies have also been undertaken to investigate synoptic and sub-synoptic events over the Baltic region, thus exploring the role of transient weather systems for the hydrological cycle. A special aspect has been the strong interests and commitments of the meteorological and hydrological services because of the potentially large societal interests of operational applications of the research. As a result of this interests special attention has been put on data-assimilation aspects and the use of new types of data such as SSM/I, GPS-measurements and digital radar. A series of high resolution data sets are being produced. One of those, a 1/6 degree daily precipitation climatology for the years 1996–1999, is such a unique contribution. The specific research achievements to be presented in this volume of Meteorology and Atmospheric Physics is the result of a cooperative venture between 11 European research groups supported under the EU-Framework programmes.