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Private real estate funds post solid returns, lag REITs – Pensions & Investments

The total return for private real estate funds was 3.9% in the second quarter as measured by the NCREIF Fund Index – Open End Diversified Core Equity. Typically, the income component adds 90 to 100 basis points quarterly, and it was 99 basis points last quarter. Appreciation, 2.94%, accounted for the balance of the period’s return.

The asset class has generated increasing returns since losing 1.6% a year ago during the pandemic, posting positive returns since then.

However, those returns do not account for fees. The second quarter’s figure was 3.7% net of fees, and it shaved more than 90 basis points to 100 basis points from private real estate funds’ annual returns.

Comparing private real estate funds and REIT total returns over different time horizons, the former comes up short. Before taking out fees, the NFI-ODCE index’s annualized total return trailed the NAREIT All Equity REIT index by 65 basis points over 10 years, although the gap was wider for shorter periods. But looking at the returns since the NFI-ODCE index’s inception in January 1978, the REIT’s index’s 12.1% annual return bested the NFI-ODCE index by more than 360 basis points.

The NFI-ODCE index did provide better downside protection last year. The REIT index lost more than 23% in the first quarter of 2020 before recovering strongly.



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