Institutional Real Investments : Real Estate in a Multi-Asset Portfolio

Abstract: The purpose of this thesis is to analyze real estate investments from the vantage point of an institutional multi asset investor perspective, both in terms of the potential benefits real estate can bring as well as the challenges it can pose. The thesis consists of six papers and approaches the research question from three distinct perspectives.The quantitative papers consists of paper 1 and 5. Paper 1 analyses the portfolio characteristics of domestic and international real estate in a mean variance framework over seven investor domiciles. It is found that the optimal allocation to real estate is in the range of 15-25 percent depending on domicile of the investor. The fifth paper expands the analysis in paper one by expanding the data. Furthermore, the analysis is extended to investigate how the structure of the real estate portfolio can support a diversification objectives best.Papers 2, 3 and 4 are the market related papers. Paper 2 compares the suggested allocation weights with the allocation to real estate of institutions in four countries, and finds that the actual allocation is significantly lower and that all investor domiciles have a significant home bias. The third paper discusses changes in the institutional framework of real estate markets and the size of the investment universe. Paper 4 discusses various entry points to the real estate market, and how an investor can utilize these in order to adjust the characteristics of the real estate portfolio.The sixth and last paper is qualitative, and investigates how institutions managing pension capital handle real estate. ​