Investment Timing Was Key for Closed-End Funds Open-end funds, though more widely dispersed than at the end of the period, were still much less so (9%) than the closed-end funds. Closed-end funds also had a wide dispersion (26%) during the first five years of the time period. While results varied over time, looking, for example, at a five-year measurement period from 2015 to 2020, the 5th-to-95th-percentile spread in time-weighted returns for closed-end funds was 29%, compared to only 5% for open-ended funds, even after screening for closed-end funds with low levels of committed capital invested. Similarity in aggregate performance did, however, mask a significant difference in the dispersion of individual fund returns between open- and closed-end funds. The annualized time-weighted total return for closed-end funds over this period was 3.2% - and 4.0% for open-end funds.Īggregate Performance of US Closed- and Open-End Funds Was Similar in Recent Years 1 When we compare the rolling 12-month time-weighted total returns, we find some differentiation, but overall the trends have been remarkably similar. closed-end funds from the Burgiss Manager Universe dataset. AFOE Quarterly Property Fund Index to U.S. The exhibit below illustrates this by comparing the performance of open-end funds from the MSCI/PREA U.S. Despite these differences, our analysis shows performance between these fund groups has been strikingly similar at the aggregate level, suggesting they may have more in common than some investors assume and highlighting the importance of the common, underlying real-estate-market drivers of performance. Open-end funds typically seek to provide a more diversified, perennial, income-focused exposure to the asset class. Due to their finite life span, closed-end funds are often used as a vehicle for more active, value-add or opportunistic strategies that focus on maximizing capital growth of assets over predetermined business plans. Pooled vehicles can be subdivided into open-end and closed-end funds. These provide more diversification than direct investing and are less exposed to market volatility than listed real estate. One avenue for investors to access private real estate is through pooled unlisted funds. We used a simulation to demonstrate that even investors who make commitments to many closed-end real estate funds may still face a wide range of potential portfolio outcomes, so fund selection mattered. The aggregate result also masked a wide performance variation across individual closed-end funds. The timing of cash flows into and out of funds can significantly impact performance and, for the funds in our analysis, these timing dynamics appear to have had a positive impact overall, during our study period. Important differences underlie the aggregate performance, however, and closed-end-fund investors’ outcomes are unlikely to be average. Despite that, their aggregate performance has been strikingly similar to open-end funds’ performance in the U.S. Performance dispersion across closed-end funds created opportunity for investors able to select top-quartile managers, but even those making a large number of commitments potentially faced a wide range of portfolio returns.Ĭlosed-end real estate funds may employ varied approaches from fund to fund, but, typically, they all employ very different strategies from those of open-end funds. How investors timed their commitments to closed-end funds, as well as how managers drew down and returned capital to investors, contributed toward money-weighted returns that were 2 percentage points higher than their equivalent time-weighted returns.was strikingly similar in recent years, despite large differences in their strategic focus and the roles they play in institutional portfolios. The aggregate performance of closed- and open-end real estate funds in the U.S.
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