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Impact of Fund Size on the Quartile Ranking of Closed-End Private Real Estate Funds – March 2015

by Madeleine Stretton

  • 20 Mar 2015
  • RE

Preqin’s Performance Analyst online service contains performance data for 931 closed-end private real estate funds with vintage years between 2002 and 2012. This blog will break down these funds by fund size and examine the links between this and the quartile rankings of real estate funds. 

As can be seen in the chart above, there is an indication that within the smallest fund size category there is the highest proportion of top performing funds; a third (33%) of vehicles with a fund size of less than $250mn fall within the top quartile. On the other hand, the largest fund category of $1bn or more has just 18% of funds within the top quartile. The largest funds category has 32% of its funds falling into the bottom quartile, higher than the 21% of vehicles with a fund size of less than $250mn.

In contrast, when looking at the fund size category $250mn-$499mn, it can be seen that 46% of these funds fall within the 1st and 2nd quartiles; and then comparably within the larger fund size category $500mn-$1bn, there are 51% of these funds in the 1st and 2nd quartiles.

On balance, the quartile rankings breakdown of these funds suggests that the smaller funds have been able to produce higher returns in the past, potentially as a result of their nimbleness when making investments. However, larger funds typically follow the market more closely and therefore carry less risk than the smaller funds, which could account for the lower proportion of funds within the top quartile ranking. 

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