Management Style and Asset Allocation in Real Estate Portfolios

Executive Summary. This study applies the management style model developed by Sharpe to the returns on private equity real estate. Returns from twenty-six open-end and closed-end commingled funds over the period from the fourth quarter of 1989 to the third quarter of 1995 are used to estimate implied allocations for five property types (office, retail, R&D office, warehouse, apartment). These allocations are then compared to the actual allocations for these funds. For many funds the returns on the five property-type portfolios are able to explain an important part of the variation in the fund's return. The ability to reproduce the actual allocations of the portfolios is somewhat less impressive. For a small, but not insignificant, portion of the funds, the property type has little ability to explain the fund's returns.