Management fee base: financing and investment decisions

2015 ◽  
Vol 8 (1) ◽  
pp. 46-65
Author(s):  
Pierpaolo Pattitoni ◽  
Barbara Petracci ◽  
Valerio Potì ◽  
Massimo Spisni
Keyword(s):  
Real Estate ◽  
Mutual Fund ◽  
Negative Impact ◽  
Balance Sheet ◽  
Market Value ◽  
Relative Effect ◽  
Content Type ◽  
Management Fees ◽  
Performance Fees ◽  
Asset Value

Purpose – The aim of this paper is to focus on different compensation structures for real estate mutual fund Management Companies and assess whether management fees paid on either Net Asset Value (NAV) or Gross Asset Value (GAV) generate distorted incentives relative to those generated by performance fees paid on the market value of the fund. Design/methodology/approach – To test whether management fees induce Management Companies to opportunistic behaviors, the relative effect of NAV- and GAV-based fees is compared over time using a plethora of econometric models. Findings – It is found that Management Companies that are paid GAV-based fees start with higher leverage to expand assets under management, then, subsequently, drive leverage and over-investment down as fund maturity approaches to minimize the negative impact of negative NPV investments on the final market value of the fund and therefore on performance fees paid at maturity. Research limitations/implications – A dataset of Italian listed real estate mutual funds is used. While the Italian market can be considered an ideal setting for an empirical analysis, studies on other countries would make it possible to test implications of the model that are only weakly identified in our setting. Practical implications – Results could be important when designing managerial contracts. Originality/value – It is shown that Management Companies actively manage the size of their balance sheet to maximize fees, and that NAV-based fees produce effects similar to market-based fees in terms of managerial incentives.

Manager characteristics and real estate mutual fund returns, risk and fees

2006 ◽  
Vol 32 (12) ◽  
pp. 988-996 ◽  
Author(s):  
James Philpot ◽  
Craig A. Peterson
Keyword(s):  
Human Capital ◽  
Real Estate ◽  
Mutual Fund ◽  
Market Risk ◽  
Human Capital Theory ◽  
Future Research ◽  
Capital Theory ◽  
Content Type ◽  
Management Fees ◽  
Managed Funds

PurposeThe purpose of this paper is to analyze the effects of individual manager characteristics on real estate mutual fund (REMF) performance. Human capital theory predicts that factors like education, experience and professional certifications improve skill sets and thus performance. Conversely, capital markets theory suggests that these things may be irrelevant in the management of mutual funds.Design/methodology/approachA total of 63 REMFs were sampled over the period 2001‐2003 and equations were estimate regressing, alternatively, risk‐adjusted return, market risk and management fees on a series of fund variables and manager characteristics including the manager's tenure, whether the fund manager holds a professional certification, whether the manager has specific real estate experience, and whether the fund is team‐managed.FindingsModest evidence is found that team‐managed funds have lower risk‐adjusted returns than solo‐managed funds. Managers with longer tenure tend to pursue higher market risk levels, and there is no relation between manager characteristics and management fees.Research limitations/implicationsThis study considers only one cross‐sectional time period. Future research might use longitudinal data.Practical implicationsDespite real estate being a specialized field of finance, there is little if any support for the predictions of human capital theory that experience, education and training result in greater performance among managers of REMFs.Originality/valueThis paper extends prior work in mutual fund management characteristics and fund performance to real estate funds.

Asset concentration in the US agricultural balance sheet: a relative information approach

2018 ◽  
Vol 78 (4) ◽  
pp. 497-512
Author(s):  
Gulcan Onel ◽  
Jaclyn Kropp ◽  
Charles B. Moss
Keyword(s):  
Real Estate ◽  
Balance Sheet ◽  
State Level ◽  
United States Department ◽  
Factor Productivity ◽  
Content Type ◽  
Inequality Measures ◽  
The Us ◽  
The Usa ◽  
Real Estate Prices

Purpose Over the past four decades, real values of farm real estate and the share of assets on farmers’ balance sheets attributed to farm real estate have increased. The purpose of this paper is to examine the factors that explain the concentration of the US agricultural balance sheet around a particular asset, farm real estate, and the extent to which the degree of asset concentration varies across United States Department of Agriculture production regions. Design/methodology/approach State-level data from 48 states and entropy-based inequality measures are used to examine changes in asset distributions (real estate vs non-real estate assets) both within and between regions over time. Findings The agricultural balance sheet is found to concentrate into real estate in the USA over the period 1960-2003 with the rate of concentration varying across production regions. In some regions, the concentration is mainly due to changes in real estate prices, while in other regions concentration is also driven by changes in real estate holdings or changes in total factor productivity. Originality/value This study formally estimates the degree to which the concentration of balance sheet items can be explained by the observed changes in farm real estate prices relative to observed changes in agricultural factor productivity or changes in farm real estate holdings. The computed regional differences in asset concentration and its main drivers have implications for changes in equity and solvency positions of farmers as well as agricultural lenders’ risk exposure.

Pricing three cases of performance fees using options methodology

2019 ◽  
Vol 46 (1) ◽  
pp. 56-71
Author(s):  
Tom Messmore ◽  
Travis L. Jones
Keyword(s):  
Value Added ◽  
Options Pricing ◽  
Portfolio Performance ◽  
Investment Management ◽  
Fair Price ◽  
Content Type ◽  
Management Fees ◽  
Fee Structure ◽  
Performance Fees ◽  
Investment Manager

Purpose Prior research has demonstrated that investment management performance fees have the characteristic of a call option. It is important to examine whether these performance fees are consistent with traditional fee structures used by investment managers. It is also worth examining whether clients or managers benefit significantly more than the other party under performance fee structures. The paper aims to discuss these issues. Design/methodology/approach The authors use Black-Scholes options pricing methodology to examine three cases of performance fee structures. The Absolute Hurdle case examines the fee structure where the manager receives a portion of the return over a pre-defined absolute rate of return. The Benchmark Relative Hurdle case shows a fee structure based on performance in excess of the return of a benchmark portfolio. The Breakeven Relative Hurdle case illustrates the fee structure where there is revenue neutrality with the classic management fees when portfolio performance matches the benchmark. Findings The findings of this paper illustrate that a particular performance fee structure can be designed to have the same revenue as a traditional investment management fee structure. Such a structure is equally beneficial to both the investment manager and to the client and should have salutary motivational effects to improve investment results, while simultaneously rewarding the manager for value added at a fair price for both the manager and the investor. Originality/value This study is unique in that it examines three cases of performance fees and provides a comparison between performance fee structures and traditional investment management fee structures. The findings will assist investment portfolio managers in better setting management fees they charge clients. In addition, this study help with clients who feel they are being charged excessive management fees by their investment manager.

Farm income and output and lending by the farm credit system

2017 ◽  
Vol 77 (1) ◽  
pp. 125-136 ◽  
Author(s):  
Denis Nadolnyak ◽  
Xuan Shen ◽  
Valentina Hartarska
Keyword(s):  
Real Estate ◽  
Financial Markets ◽  
Fixed Effects ◽  
Balance Sheet ◽  
State Level ◽  
Farm Income ◽  
Full Time ◽  
Data Set ◽  
Content Type ◽  
Rural Financial Markets

Purpose The purpose of this paper is to provide evidence of the positive impact of the FCS lending on farm incomes which should be useful to policymakers as they consider reforms and further support for this 100-year-old major agricultural lender. Design/methodology/approach The authors construct a panel for the 1991-2010 period from the FCS financial statements and evaluate how lending by the FCS institutions has affected farm incomes and farm output. The authors use fixed effects estimations and control for credit by other agricultural lenders as well as the stock of capital, prices, and interest rates. Since previous work suggests that rural financial markets are segmented and the FCS serves larger full-time farmers with mostly real-estate backed loans, the authors evaluate the impacts of farm real-estate backed loans and of short-term agricultural loans separately for a shorter period for which the data is available. The authors also perform robustness checks with alternative estimation techniques. Findings The authors found a positive association between credit by the FCS institutions and farm income and output. The magnitude of the estimated impact is larger during the 1990s than in the 2000s. Research limitations/implications The positive link between the FCS institutions’ credit and farm incomes and output supports the notion that the FCS lending was beneficial to farmers. The evidence also supports the segmentation hypothesis of rural financial markets. The financial reports data for 1991-2010 are from the ACAs and FLCAs aggregated on the regional level because there is no clear way to classify FCS lending to a more disaggregate level like the state. The authors also assemble and analyze a state-level data set that contains state-level balance sheet data for the period 1991-2003. Originality/value The authors are not aware of another work that directly links (real estate and non-real estate) credit by FCS institutions to agricultural output and farm incomes.

scholarly journals Brokers’ list price setting in an auction context

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rosane Hungria-Gunnelin ◽  
Fredrik Kopsch ◽  
Carl Johan Enegren
Keyword(s):  
Real Estate ◽  
Market Value ◽  
Hedonic Model ◽  
List Price ◽  
Selling Price ◽  
Full Sample ◽  
Sales Price ◽  
Content Type ◽  
Real Estate Brokers ◽  
Price Strategies

Purpose The role of list price is often discussed in a narrative describing sellers’ preferences or sellers’ price expectations. This paper aims to investigate a set of list price strategies that real estate brokers have available to influence the outcome of the sale, which may be many times self-serving. Design/methodology/approach By analyzing real estate brokers’ arguments on the choice of the list price level, a couple of hypotheses are formulated with regard to different expected outcomes that depend on the list price. This study empirically tests two hypotheses for the underlying incentives in the choice of list price from the real estate broker’s perspective: lower list price compared to market value leads to the higher sales price, lower list price compared to market value leads to a quicker sale. To investigate the two hypotheses, this paper adopts different methodological frameworks: H1 is tested by running a classical hedonic model, while H2 is tested through a duration model. This study further tests the hypotheses by splitting the full sample into two different price segments: above and below the median list price. Findings The results show that H1 is rejected for the full sample and for the two sub-samples. That is, contrary to the common narrative among brokers that underpricing leads to a higher sales price, underpricing lower sales price. H2, however, receives support for the full sample and for the two sub-samples. The latter result points to that brokers may be tempted to recommend a list price significantly below the expected selling price to minimize their effort while showing a high turnover of apartments. Originality/value Although there are a large number of previous studies analyzing list price strategies in the housing market, this paper is one of the few empirical studies that address the effect of list price choice level on auction outcomes of non-distressed housing sales.

Association between fund attributes and fund's performance: a panel data approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anurag Bhadur Singh ◽  
Priyanka Tandon
Keyword(s):  
Panel Data ◽  
Performance Measures ◽  
Mutual Fund ◽  
Fund Performance ◽  
Content Type ◽  
Turnover Ratio ◽  
Asset Value ◽  
Net Asset Value ◽  
Ultimate Objective ◽  
Fund Size

PurposeThe present study tries to explore the various fund attributes that influence the mutual fund performance. Further, study examined the effect of mutual fund attributes namely, Net Asset Value (NAV), Portfolio turnover ratio (PTR), fund size (AUM), expense ratio (ExpR) and fund age (Age) on mutual fund's performance using gross return and risk-adjusted performance measures.Design/methodology/approachThe study evaluated balanced panel data (short panel) comprising 81 Indian equity mutual fund schemes for the period of 2013–2019. The study estimated relationship between fund attributes (Net asset value, Portfolio turnover ratio, Fund age, fund size and Expense ratio) and fund performance (using gross return and risk-adjusted performance measures), through panel data regression using fixed-effects model as suggested by Hausman specification test on transformed data (due to high multicollinearity), with cluster-robust estimators due to the presence of heteroskedasticity in the model.FindingsThe findings of the study suggested that using gross return as fund performance measure, PTR, NAV, AUM, Age exhibit significant relationship with the fund performance whereas using risk-adjusted performance measures (Treynor ratio and Jensen alpha) NAV and ExpR significantly influences the fund performance. Identification of the significant relationship between fund characteristics and fund performance offers valuable insights to the investors and fund managers for rationally managing their portfolio with the ultimate objective of the wealth maximization.Research limitations/implicationsThe study considered only 81 equity mutual fund schemes. Some of the data were not available at the time of the study due to the policy of the company. The present study contributes significantly in examining the expected association between fund attributes and fund performance in the context of Indian mutual fund industry where this relationship were explored less.Practical implicationsThe findings of the present study will help the investors to take the rational investment decision with the ultimate objective of maximum return with minimal risk. The findings also offer significant germane to the stakeholders in making rational decision-making process.Originality/valueThere is dearth of study concerning the relationship between mutual fund characteristics and fund performance with respect to Indian mutual fund industry. Therefore, study provides valuable insights to the area of the portfolio selection and management with respect to Indian mutual funds.

Cyclical capitalization and lag vacancy

2017 ◽  
Vol 10 (2) ◽  
pp. 211-238 ◽  
Author(s):  
Maurizio d’Amato
Keyword(s):  
Real Estate ◽  
Market Value ◽  
Real Estate Market ◽  
Mortgage Lending ◽  
Property Market ◽  
Content Type ◽  
The Real ◽  
The Real Estate ◽  
The Real Estate Market ◽  
Valuation Process

Purpose This paper aims to propose a new valuation method for income producing properties. The model originally called cyclical dividend discount models (d’Amato, 2003) has been recently proposed as a family of income approach methodologies called cyclical capitalization (d’Amato, 2013; d’Amato, 2015; d’Amato, 2017). Design/methodology/approach The proposed methodology tries to integrate real estate market cycle analysis and forecast inside the valuation process allowing the appraiser to deal with real estate market phases analysis and their consequence in the local real estate market. Findings The findings consist in the creation of a methodology proposed for market value and in particular for mortgage lending determination, as the model may have the capability to reach prudent opinion of value in all the real estate market phase. Research limitations/implications Research limitation consists mainly in a limited number of sample of time series of rent and in the forecast of more than a cap rate or yield rate even if it is quite commonly accepted the cyclical nature of the real estate market. Practical implications The implication of the proposed methodology is a modified approach to direct capitalization finding more flexible approaches to appraise income producing properties sensitive to the upturn and downturn of the real estate market. Social implications The model proposed can be considered useful for the valuation process of those property affected by the property market cycle, both in the mortgage lending and market value determination. Originality/value These methodologies try to integrate in the appraisal process the role of property market cycles. Cyclical capitalization modelling includes in the traditional dividend discount model more than one g-factor to plot property market cycle dealing with the future in a different way. It must be stressed the countercyclical nature of the cyclical capitalization that may be helpful in the determination of mortgage lending value. This is a very important characteristic of such models.

The risk of real estate ownership: evidence from German equities

2015 ◽  
Vol 8 (2) ◽  
pp. 107-129 ◽  
Author(s):  
Karim Rochdi
Keyword(s):  
Risk Factors ◽  
Real Estate ◽  
Risk Premium ◽  
Balance Sheet ◽  
Systematic Risk ◽  
Considerable Proportion ◽  
Content Type ◽  
Corporate Real Estate ◽  
Systematic Risk Factors ◽  
Estate Ownership

Purpose – This paper aims to investigate the repercussions and impact of corporate real estate on the returns of non-real-estate equities in a time-series setting. While the ownership of real estate constitutes a considerable proportion of most listed firms’ balance sheet, in the existing literature, whether or not the benefits outweigh the risks associated with corporate real estate, is the subject of controversy. Design/methodology/approach – The role of corporate real estate ownership in the pricing of returns is examined, after taking well-documented systematic risk factors into account. Employing a data sample from 1999 to 2014, the conditions and characteristics faced by firms with distinct levels of corporate real estate holdings are identified and analyzed. Findings – The findings reveal that corporate real estate intensity indeed serves as a priced determinant in the German stock market. Among other results, the real-estate-specific risk factor shows countercyclical patterns and is particularly relevant for companies within the manufacturing sector. Practical implications – The findings provide new insights into the interpretation of corporate real estate and expected general equity returns. Thus, the present analysis is of particular interest for investors, as well as the management boards of listed companies. Originality/value – To the best of the author’s knowledge, this is the first paper to investigate the ownership of corporate real estate as a priced factor for German equities, after accounting for the well-documented systematic risk factors, namely, market (market risk premium), size (small minus big) and book-to-market-ratio (BE/ME) (high minus low).

The concept of market value in thin markets and its implications for international accounting rules (IFRS)

2019 ◽  
Vol 37 (3) ◽  
pp. 301-310 ◽  
Author(s):  
Hans Lind ◽  
Bo Nordlund
Keyword(s):  
Balance Sheet ◽  
Market Value ◽  
Reservation Price ◽  
Content Type ◽  
Current Accounting ◽  
Thin Markets ◽  
Thin Market ◽  
Reservation Prices ◽  
Accounting Rules ◽  
Conceptual Paper

Purpose The purpose of this paper is to discuss how the concepts market value (MV) and exit price should be interpreted in thin markets and how accounting rules may need to change to take this into account. Design/methodology/approach This is a conceptual paper using hypothetical examples as a base for the conclusions. Findings In a thin market, actors can have rather different reservation prices. The price will then be set through bargaining and the agreed price could be considerable above the reservation price of the actor with the second highest reservation price. The exit price should then be below what the MV was before the transaction and below the entry price, and according to the current accounting rules, the value in the balance sheet should then be below the price paid. The authors’ experience is, however, that this rarely happens in practice. Research limitations/implications The limitation of the paper is that it is a conceptual paper and not based a systematic empirical study of accounting practices. Practical implications The results of the paper indicate that there is a need to revise the current accounting rules. Possible changes are discussed. Originality/value As far as the authors know, this is the first paper that looks at problems in the current value concepts related to differences in reservation prices in thin markets.

scholarly journals Real estate fund active management

2015 ◽  
Vol 33 (6) ◽  
pp. 494-516 ◽  
Author(s):  
Stephen Lee ◽  
Giacomo Morri
Keyword(s):  
Real Estate ◽  
Tracking Error ◽  
Real Estate Market ◽  
Active Management ◽  
Sample Period ◽  
Management Styles ◽  
Tracking Errors ◽  
Content Type ◽  
Management Fees ◽  
The Uk

Purpose – The purpose of this paper is to analyse the performance of UK property funds using the dual sources of active management, Active Share and tracking error, to distinguish between the types of active management styles used by funds. Design/methodology/approach – The authors use data on 38 UK real estate funds and classify them into five active management categories using the dual sources of active management, Active Share and tracking error. Then, the authors compare their return performance against Active Share, tracking error, fund size and leverage. Therefore the paper is able to answer two of the fundamental questions of investment: does active management add value and what form of active management, stock selection or factor risk, is better at adding value to the fund? Findings – There are three main conclusions. First, the approach of Cremers and Petajisto (2009) and Petajisto (2010) is able to classify real estate funds in the UK on their management activity into categories that makes intuitive sense and seem stable over time. Second, balanced funds show relatively low Active Shares and particularly low tracking errors, due to the benefits of property-type diversification. In contrast, specialists funds display higher Active Shares and both low and high tracking errors depending on their stock-picking approach; diversified or concentrated. Third, an analysis over different time periods confirmed that funds in the sample essentially remained in the same categories within the sample period, even during markedly different market return periods. This implies that investors need to constantly monitor changes in the market and switch between fund management styles, if at all possible. Research limitations/implications – The analysis was only based on 38 funds with complete data over the sample period and the relationship between fees and active management was not examined, even though ultimately investors are concerned with returns after management fee. It would be instructive therefore if the number of funds and time period was expanded to see if the results are robust and to see whether management fees outweigh the benefits of active manager. Practical implications – The findings should enable investors to make a more informed investment decisions in the future. Originality/value – To the best of the author’s knowledge this is the first paper to apply the dual sources of active management, Active Share and tracking error, in the UK real estate market.

Sign in / Sign up

Export Citation Format

Share Document