PrEQIn Real Estate Index: Post-GFC Performance

by Darren Fernandes

  • 19 Jan 2017
  • RE

Methodology: the PrEQIn Real Estate Index is calculated using data on quarterly cash flow transactions and NAVs reported for over 1,700 individual real estate partnerships on Preqin's Real Estate Online. The index provides an insight into the performance of the real estate asset class as a whole, as well as by fund strategy. For comparison with all asset classes, the PrEQIn Private Capital Index* has also been included. All indices have been rebased to 100 as of 31 December 2007.

Given the role that real estate played in the Global Financial Crisis (GFC), we can see large declines in returns posted by all real estate strategies between 2008 and 2010. PrEQIn Private Capital follows a similar trend to real estate; however, it recovered faster, reaching pre-GFC levels by Q2 2011 due to the index incorporating the returns of infrastructure and natural resources vehicles, which were less affected by the GFC, as well as high-returning private equity vehicles.

The PrEQIn Real Estate Debt Index has consistently outperformed PrEQIn Opportunistic and PrEQIn Value Added since Q4 2007, with the indices standing at 122.0, 93.1 and 85.3 as of Q2 2016 respectively. Debt is also the only real estate strategy to have fully recovered returns lost from the GFC, which it did as of Q1 2015. The strong returns seen for this strategy can be attributed to more investment opportunities following the crisis, as banks struggled to provide any form of debt liquidity to the market. Given value added and opportunistic are higher-risk strategies, these investments would have been more likely to fail to produce expected returns following the crisis; as such, both of these strategies underperformed the real estate asset class as a whole. The latest quarter’s figure for real estate debt, however, was a slight decline from Q1 and only the second decline in index points for this strategy since Q2 2010. Contrastingly, the Opportunistic and Value Added indices have seen quarter-on-quarter growth over the same period, albeit at a slower rate.

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