Real Estate Horizon IRRs vs. All Private Equity and MSCI US REIT Index – April 2016

by Lisa Parker

  • 04 Apr 2016
  • PE
  • RE

Preqin’s Private Capital Cash Flow data includes since inception quarterly transactions for almost 3,200 funds, 400 of which are closed-end private equity real estate funds. Using this data, it is possible to examine the horizon IRRs of real estate funds against all private equity and the MSCI US REIT Index over one-, three-, five- and 10-year periods.

Horizon IRRs are a standard method of examining performance over a defined period; they are calculated using the net asset value of the fund as a negative outflow at the beginning of the period, any cash paid or received during the period, and the fund’s residual value as a positive inflow at the end of the period.

As shown in the chart above, over the one-year period to 30 June 2015, real estate funds produced the highest returns (+15.0%), followed by all private equity (+13.0%); the public market, however, generated significantly lower returns for investors, with the MSCI US REIT Index returning 3.9% over the 12 months. The public market again underperformed real estate and all private equity in both the three- and five-year periods, although all three asset types produced similar returns over the five-year period of approximately 15%. Over the longer term, in the 10-year period to 30 June 2015, real estate produced its highest horizon returns (+23.4%), outperforming both private equity (+16.1%) and the public market (+7.0%).

Real estate funds have performed similarly to private equity funds over the one-, three- and five-year horizon; however, over the longer term, private real estate has outperformed private equity by a significant margin. As expected, both the real estate and private equity industries have outperformed the public market over the past 10 years.

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