Performance vs prospectus = transparency in German closed-ended real estate funds?

2018 ◽  
Vol 36 (2) ◽  
pp. 158-170 ◽  
Author(s):  
Michael Nadler
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Global Financial Crisis ◽  
Variance Analysis ◽  
German Market ◽  
Content Type ◽  
Fund Managers ◽  
Ex Post ◽  
Ex Ante ◽  
The Impact

Purpose The purpose of this paper is to close the transparency gap by comparing ex ante and ex post performance disclosure, thus providing important conclusions regarding the transparency of this important German market segment. Design/methodology/approach Closed-ended real estate funds (CEREFs) are one of the biggest segments of unlisted private equity funds in Germany. CEREFs have a central “profitability promise” that is based on ex ante forecasts given in the prospectus. Typically, equity is tied to these investments for up to 20-30 years, leaving investors highly insecure whether their expectations will be fulfilled and fund managers actually achieve prospected performances ex post. Findings The performance variance analysis of all German CEREFs outstanding during the global financial crisis reveals that prospect-performance disclosures as well as prospect-performance variances cause substantial problems in Germany due to overestimation biases of many fund managers. Research limitations/implications As typical for the recent scholarly debate, also the past disclosure practice in Germany prohibits a long-term performance analysis, unless researchers apply instruments of modern investment analysis like comprehensive financial plans (“Visualisation of Financial Implications)”. Practical implications The transparency developments in CEREF-reporting of the last decade deliver precise recommendations regarding the internal and external performance variance analysis, risk-profiles and stress tests for the future fund management. Social implications The introduced methodology would increase transparency in the segment of CEREF and, thus, improve investor protection. Since private households in Germany mainly acquire these funds, this is a contribution to sustainability in private asset management. Originality/value The paper develops a new methodological framework for performance measurement of unlisted funds. It then assesses for the first time the impact of transparency and trust on fund performances by applying a performance variance analysis.

Performance determinants of European private equity real estate funds

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Giacomo Morri ◽  
Ugo Perini ◽  
Rachele Anconetani
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Global Financial Crisis ◽  
Positive Impact ◽  
Practical Implication ◽  
Negative Relationship ◽  
Value Added ◽  
Content Type ◽  
Performance Determinants ◽  
The Impact

Purpose The paper aims to investigate the performance determinants of European non-listed private equity real estate funds between 2001 and 2014. Design/methodology/approach Using a sample of 363 funds collected from the Inrev database, the analysis evaluated the impact of fees and other intrinsic characteristics of these funds, such as leverage, size and duration, on the funds’ performance, intending to enhance the understanding underlying their relationship. Findings The findings show a negative relationship between the return of the funds and redemption fee, performance fee and management fee. Conversely, marketing fees have a positive effect on performance. When analyzing the investment style, the results reveal inhomogeneous behaviors of leverage on funds’ performance. This variable has a positive impact on the return in core funds, while there is a negative relationship in value-added investments. Finally, the emphasis on the global financial crisis shows that the effects of the independent variables on the performance do not significantly change in different economic cycles. Practical implications The practical implication of the research is to understand whether an investor can direct its resources in a fund, leveraging on certain intrinsic characteristics that can be observed a priori. Originality/value Even if there is a considerable body of literature on determinants of performance in European non-listed real estate funds, little research has analyzed the role of fees in driving their results. Besides, this paper takes advantage of observations from different investment styles to emphasize the impact of higher or lower risk profiles and from the full economic cycle to understand the effects of the crisis period.

The impact of guaranteed bailout assistance on bank loan overstatement

2016 ◽  
Vol 12 (2) ◽  
pp. 177-210
Author(s):  
Alejandro Hazera ◽  
Carmen Quirvan ◽  
Salvador Marin-Hernandez
Keyword(s):  
Financial Crisis ◽  
Emerging Market ◽  
Balance Sheet ◽  
Bank Loan ◽  
Content Type ◽  
Put Options ◽  
Regulatory Policies ◽  
Ex Post ◽  
Ex Ante ◽  
The Impact

Purpose – The purpose of this paper is to highlight how the basic binomial option pricing model (BOPM) might be used by regulators to help formulate rules, prior to financial crisis, that help prevent loan overstatement by banks in emerging market economies undergoing financial crises. Design/methodology/approach – The paper draws on the theory of soft budget constraints (SBC) to construct a simple model in which banks overstate loans to minimize losses. The model is used to illustrate how guarantees of bailout assistance (BA) (to banks) by crisis stricken countries’ financial authorities may encourage banks to overstate loans and delay the implementation of IFRS for loan valuation. However, the model also illustrates how promises of BA may be depicted as binomial put options which provide banks with the option of either: reporting loan values on poor projects accurately and receiving the loans’ liquidation values; or, overstating loans and receiving the guaranteed BA. An illustration is also provided of how authorities may use this representation to help minimize bank loan overstatement in periods of financial crisis. In order to provide an illustration of how the option value of binomial assistance may evolve during a financial crisis, the model is generalized to the Mexican financial crisis of the late 1990s. During this period, Mexican authorities’ guarantees of BA to the nation’s largest banks encouraged those institutions to overstate loans and delay the implementation of (previously adopted) international “best practices” based loan valuation standards. Findings – Application of the model to the Mexican financial crisis provides evidence that, in spite of Mexico’s “official” 1997 adoption of international “best accounting practices” for banks, “iron clad” guarantees of BA by the country’s financial authorities to Mexico’s largest banks provided those institutions with an incentive to knowingly overstate loans in the late 1990s and early 2000s. Research limitations/implications – The model is compared against only one country in which the BA was directly infused into banks’ loan portfolios. Thus, as conceived, it is directly applicable to crisis countries in which the bailout took this form. However, the many quantitative variations of SBC models as well as recent studies which have applied the binomial model to other forms of bailout (e.g. direct purchases of bank shares by authorities) suggest that the model could be modified to accommodate different bailout scenarios. Practical implications – The model and application show that guaranteed BA can be viewed as a put option and that ex-ante regulatory policies based on the correct valuation of the BA as a binomial option might prevent banks from overstating loans. Social implications – Use of the binomial or similar approaches to valuing BA may help regulators to determine the level of BA that will not encourage banks to overstate the value of their loans. Originality/value – Recent research has used the BOPM to value, on an ex-post basis, the BA which appears on the balance sheet of institutions which have been rescued. However, little research has advocated the use of this type of model to help prevent, on an ex-ante basis, the overstatement of loans on poor projects.

The Law of Private Investment Funds

2018 ◽  
Author(s):  
Spangler Timothy
Keyword(s):  
Hedge Funds ◽  
Financial Services ◽  
Private Equity ◽  
Global Financial Crisis ◽  
Private Investment ◽  
Investment Fund ◽  
Investment Funds ◽  
Fund Managers ◽  
The Global Financial Crisis ◽  
The Impact

This book provides a clear and concise dual US/UK and pan-asset analysis on the legal and regulatory issues that arise in connection with private investment funds. The book advises on the structuring, formation, and operation of a range of asset classes, including hedge funds, private equity funds, real estate funds, and other non-retail collective investment vehicles. This edition has been revised to reflect the numerous and significant developments in financial services regulation on both sides of the Atlantic since the publication of the second edition. More elements of the Dodd Frank financial regulatory reforms, which increased the scope and reach of regulation applicable to private funds, have been implemented and commented on in this edition. In relation to European regulation, the impact of the commencement of the Alternative Investment Fund Managers Directive (AIFMD) has also now been analysed. The US/UK approach is maintained, but this edition now also includes consideration of third countries, particularly the Middle East and Asia. An entirely new chapter is dedicated to litigation and regulatory enforcement, and some treatment is given to the effects of the global financial crisis, in particular the regulatory response and the changes to negotiating leverage of fund managers and fund investors. The potential impact of ‘Brexit’ on the United Kingdom private funds industry and the future of the AIMFD and European private funds is also examined.

Mieterhöhungsmaschinen

2018 ◽  
Vol 48 (191) ◽  
Author(s):  
Knut Unger
Keyword(s):  
Real Estate ◽  
Private Equity ◽  
Global Financial Crisis ◽  
Public Offerings ◽  
The Public ◽  
Fund Managers ◽  
Equity Funds ◽  
Private Equity Funds ◽  
The Global Financial Crisis ◽  
Automated Processes

The article describes the development of large listed landlords in Germany (like Vonovia SE) as a specific form of the financialization of housing. Since the end of the 1990s, large stocks of the fordistic and state-socialist housing infrastructures in Germany were sold to Private Equity Funds. After the German recovery from the global financial crisis the fund managers organized the exists through public offerings. Since then a heavy concentration process has taken place that reaches transnational dimensions. The author proposes to call this process “financialized industrialization of corporate housing business”. Integrated into global financial markets and using IT, the public listed real estate companies subjugate trade, facilitation, management, renting and production of housing to standardized financial calculations and automated processes. However, the “real subsumption” of tenants to real estate capital also gives rise to social protests and reclaims.

The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

2015 ◽  
Vol 8 (1) ◽  
pp. 3-23 ◽  
Author(s):  
Giacomo Morri ◽  
Andrea Artegiani
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Capital Structure ◽  
Global Financial Crisis ◽  
Pecking Order ◽  
Trade Off ◽  
Content Type ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

Income return versus capital appraisal for real estate funds during the financial crisis

2015 ◽  
Vol 10 (1) ◽  
pp. 66-79
Author(s):  
Gianluca Mattarocci ◽  
Georgios Siligardos
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Global Financial Crisis ◽  
Capital Gains ◽  
Annual Reports ◽  
Content Type ◽  
Income Sources ◽  
Overall Performance ◽  
The Global Financial Crisis ◽  
The Impact

Purpose – The overall performance of real estate funds can be ascribed to capital appreciation and/or income return. The Italian property funds market has grown significantly over the past few years; however, little is known about the key drivers of property fund performance. The purpose of this paper is to measure the impact of two sources of funds’ performance and identify their relevance during the financial crisis. Design/methodology/approach – The paper considers the Italian market in the last decade and analyses the annual reports of public real estate funds, separating appraisal returns from income returns. By considering a wide time horizon, it evaluates if the roles of income returns and capital gains with respect to overall performance are more or less influenced by fund characteristics, such as asset diversification, concentration, and leverage. Findings – The contribution of income return and capital growth are not strictly related to the overall performance of Italian real estate funds, with a significantly lower correlation during the global financial crisis. Furthermore, the main drivers of the two income sources are not strictly comparable. Originality/value – The paper presents the first analysis on the source of income return for the Italian real estate funds and it represents one of the few studies that considers the effect of the financial crisis on European indirect real estate investments, capital appreciation and income return.

Ex ante, ex post risk and bank capital ratios: an empirical investigation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Faisal Abbas ◽  
Adnan Bashir
Keyword(s):  
Generalized Method Of Moments ◽  
Regulatory Capital ◽  
Content Type ◽  
Ex Post ◽  
Ex Ante ◽  
Capital Ratios ◽  
Cooperative Banks ◽  
The Impact ◽  
Practical Implications ◽  
Tier I

PurposeThe purpose of this study is to investigate the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of Japanese banks.Design/methodology/approachTo test the hypotheses, the authors have implemented a panel of 507 commercial and cooperative banks of Japan over the period extending from 2001 to 2020, using a two-step system Generalized Method of Moments (GMM) framework.FindingsThe overall sample banks' results show that the impact of leverage, regulatory capital and tier-I capital ratios on ex ante and ex post risk is positive. The findings reveal that the effects of regulatory and tier-I capital ratios on ex post risk are negative (positive) for commercial (cooperative) banks, high-liquid, low-liquid and high-growth banks in Japan. In addition, the regulatory capital ratio is more beneficial for risk due to its power to absorb losses. The lagged coefficient indicates that banks require more time to adjust their ex post and ex ante risk during crisis period than during normal economic conditions.Practical implicationsThe heterogeneity in results has practical implications for regulators, policymakers and bank managers in formulating the capital requirement guidelines with respect to ex ante and ex post risk across different categories and characteristics of banks.Originality/valueTo the best of the authors' knowledge, this is the first study investigating the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex-post risk of Japanese commercial and cooperative banks over the period from 2001 to 2020. The insights into the impact of leverage, regulatory capital and tier-I capital ratios on the ex ante and ex post risk of well-capitalized, under-capitalized, high and low-liquid banks are new in the context of Japan.

International listed real estate returns: evidence from the global financial crisis

2019 ◽  
Vol 37 (1) ◽  
pp. 72-91
Author(s):  
Alain Coën ◽  
Patrick Lecomte
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Serial Correlation ◽  
Global Financial Crisis ◽  
Publicly Traded ◽  
Content Type ◽  
Real Estate Returns ◽  
Fama And French ◽  
And Performance ◽  
The Impact

PurposeThe purpose of this paper is to analyze and revisit the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015, marked by the unprecedented Global Financial Crisis, in presence of errors-in-variables (EIV) and illiquidity (measured by serial correlation, following Getmanskyet al.(2004)).Design/methodology/approachThe authors extend the seminal work of Bondet al.(2003), and shed a new light on the relative performance of listed real estate before and after the GFC. First, the authors suggest the use of various asset pricing models (APM) including the Fama and French (2015) five-factor APM with global and country-level factors. Second, the authors implement unbiased estimators to correct for the econometric bias induced by EIV in APM. Third, the authors deal with the impact of illiquidity (measured by serial correlation) on the risk properties of international securitized real estate returns.FindingsThe findings show that post-GFC, a radical change in international listed real estate risk factors has resulted in more homogeneous markets internationally and less diversification opportunities for international investors.Practical implicationsThe authors suggest the use of robust linear APM (including the Fama and French (2015) five-factor APM) to analyze the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015.Originality/valueThe authors analyze and revisit the risk and performance of publicly traded real estate companies from 14 countries over the period 2000–2015, marked by the unprecedented Global Financial Crisis.

Real estate ownership and closely-held firm value

2014 ◽  
Vol 32 (3) ◽  
pp. 229-243 ◽  
Author(s):  
John Edward Graham ◽  
Craig Galbraith ◽  
Curt Stiles
Keyword(s):  
Small Business ◽  
Real Estate ◽  
Small Businesses ◽  
Business Strategy ◽  
Firm Value ◽  
Private Equity ◽  
Data Set ◽  
Content Type ◽  
The Impact ◽  
Estate Ownership

Purpose – The authors aim to measure the value of leasing, versus owning, business locations for the closely-held firm. Design/methodology/approach – The authors examine the sales transactions of small businesses in the USA – those with revenues of less than $20 million per year – between 1995 and 2010. The authors contrast the values of firms that own, and do not own, their real estate. Findings – In general, the authors find negative relationships between closely-held firm values and real estate ownership. Nowhere did the authors observe firm value being enhanced by property ownership. Research limitations/implications – The data set may be limited by the accuracy of the data provided by business brokers. Compared to the capital markets, the small business “exchange” is less efficient, but it is the only source of unlisted business sales data. Practical implications – The findings are important to the small-business broker and the investor. The broker might better advise the buyer and seller with the findings. Business owners, private equity investors, and their advisors, are all reminded to focus on the core business strategy and avoid getting “locked into” real estate ownership in a business investment. Originality/value – The impact of real estate on the valuations of closely-held firms is a largely unexamined area. And there is a lack of consistency on publicly-held company valuations as a function of real estate ownership; these public company findings and the dearth of work on the privately-held company's real estate attract the attention in this study.

scholarly journals Regulatory reform of private equity : the AIFMD and its implications

2021 ◽  
Author(s):  
◽  
Robert K. Rajczewski
Keyword(s):  
Private Equity ◽  
Global Financial Crisis ◽  
Regulatory Reform ◽  
Regulatory Regime ◽  
Regulatory Change ◽  
Fund Managers ◽  
Eu Directive ◽  
Global Brand ◽  
The Impact ◽  
The Eu

Private equity has grown remarkably in the last 30 years. Given its rise to prominence, exceptional profitability and a more prolific and publicly visible buyout activity, regulation in the private equity space seemed inevitable. The 2007 global financial crisis furnished an opportunity to doubt the industry’s role and magnify the key concerns, providing momentum for calls to regulate the industry more aggressively. Ultimately, the regulatory change came from the Alternative Investment Fund Managers Directive (AIFMD), which has been described as one of the most rigorously debated and controversial pieces of financial regulation to ever emerge from the European Union (EU). The AIFMD is unique and unprecedented, yet there has been very little written about it in the context of private equity. Therefore, this thesis makes a contribution to this area of research by examining the implications of AIFMD for private equity and arguing that this EU Directive has a re-shaping effect on the industry that inevitably marks the end of the light-touch regulation in this area. Whilst the desire of policymakers to act and intervene decisively during market downturns is understandable, there is a risk that the response may not be appropriate and result in a crisis-induced over-reaction. This thesis demonstrates, amongst other things, that the AIFMD has created a particularly complex regulatory regime which for the hitherto unregulated or lightly regulated fund managers has had a significant effect in the EU and beyond. Examples of the most impactful provisions relate to authorisation, marketing, depositaries, acquisition of control, remuneration, and transparency and disclosure. The implication are wide-ranging, and there is a clear conflict between the opportunities (e.g. EU passport, AIFMD as a global brand) and threats (e.g. excessive compliance costs, exodus of fund managers from the EU), which depend on a firm’s size, domicile and the gap needed to be aligned between the pre- and post-AIFMD regime. Although there will be no stark triumph of one position over another in the assessment of the AIFMD until all of its elements are fully implemented, overall the impact of the Directive has been material, requiring substantial work to comply with (or adapt to) the requirements, which in some cases are not only particularly onerous and costly, but also a bit misguided, discouraging, or fairly irrelevant.

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