There's no comparison (Editor's letter)

People who keep secrets are evil – you've seen that movie.

By extension, an asset class with no available information tends to scare people away. Not that anyone thinks private equity real estate is evil, but many potential investors have a hard time understanding how it has performed, how it should perform and how it should fit into their portfolios.

It took some time for real estate in general to find a place in institutional portfolios. But today, as witnessed by the throngs attending events like Expo Real, PREA, MIPM and the PERE Forum (November 13, New York), real estate receives an incredible level of investment with participation from all kinds of investors. Much of this growth is due to the efforts of data services providers like NCRIEF, IPD and INREV, whose performance benchmarks help people understand whether their own real estate boats are merely rising and falling with the tides, or actually floating above water thanks to the value-adding magic of investment managers.

Then there's private equity real estate – the new frontier of property investment. Managers of these funds are not simply caretakers of properties (or at least they shouldn't be). They are deployers of equity and executers of value-adding, opportunistic strategies (or at least, they should be if they're earning carried interest). Information on this smaller universe of mostly limited partnerships is scant compared to the millions of data points that make up, for example, the NCRIEF Property Indices. It is scant in part because the history of the asset class is relatively short, but also because GPs are not fond of telling people other than their own investors how they are doing.

This will likely change slowly, and private equity real estate will benefit because of it. As you read this, a crack team at NCRIEF is collecting data for an upcoming value-add and opportunity fund index, according to sources (see p. 32). IPD and INREV are also working on ways to help their members better understand the performance of private equity real estate funds.

As this issue takes performance as a core topic, you may find our feature “Inflection points” an interesting read. In it we explore four places and times in which a significant change occurred in the market, after which investors experienced either unusually good or unusually bad performance. Each inflection point has its own unique story, just as each private equity real estate fund has its own unique story. Investors want to hear these, but then they want to get down to the nitty gritty of numbers. As time goes by, they'll have these tools in spades, and GPs will even welcome this development.

Enjoy the issue,

By David Snow

david.s@peimedia.com