THE ALLOCATION OF UNLISTED REAL ESTATE FUNDS IN ASIA PACIFIC: UNDERSTANDING RISK AND RETURN

Abstract

This research delves into the evolving landscape of APAC unlisted real estate investments over two decades (2002 – 2021), using data from ANREV. The primary objective is to uncover the intricate relationships between risk factors, macroeconomic indicators, fund allocations, and returns. The first part of the thesis identifies salient empirical patterns of how risk and macroeconomic factors impact fund allocation. Notably, a 1% increase in real GDP growth in a given country of destination correlates with a 0.69% allocation increase of fund exposure to the property sector of that country, a 1% rise in inflation rate is associated with a substantial 1.89% increase, and a 1% rise in the unemployment rate leads to an average reduction in allocation of 2.67%. These findings reveal the complex interplay between economic indicators and fund allocations. However, despite extensive analysis, no statistically significant links between risk indicators and fund allocations are identified. The second part of the thesis assesses fund managers’ ability to consistently deliver positive risk-adjusted returns. The analysis yields compelling evidence that fund managers can achieve such returns. Nevertheless, risk is not uniformly rewarded. Political stability and regulatory quality exhibit positive coefficients, signifying that environments characterized by greater stability (lower risk with reduced instances of violence and well-structured policies) tend to augment investment returns. In contrast, government effectiveness demonstrates a negative correlation, implying that countries with higher levels of government credibility (lower risk) might paradoxically diminish investment returns. The results challenge the widely held axiom of ‘high risk, high returns’. In essence, this research underscores the complexity of risk-reward dynamics in the private real estate investment sector and serves as a critical focal point for interested investors.