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Digital Subscriptions > The Hedge Fund Journal > Issue 118 - Nov | Dec 2016 > Real Estate Equities

Real Estate Equities

The case for a long/short investment strategy

A significant asset class with attractive characteristics and performance

Real estate has an important role to play in any diversified portfolio. Global real estate has performed well historically, returning 7.5% p.a. over the 15 years to the end of 2015. It has typically provided a high income return component (over 80% of total return from income and 6.1% p.a. income return over the same period) and can provide inflation protection, making it a desirable asset class for investors and a core, though often overlooked, part of a mixed asset portfolio (see Fig.1). Critically, investable income producing real estate is estimated to have a gross asset value of around $34 trillion2 and represents some 18% of the total global real estate market of $191 trillion.

Accessing real estate efficiently can prove difficult for many investors, as building a diversified real estate portfolio directly through private ownership can be very challenging. In particular, this is because real estate assets are large and require specialised management and local expertise, making it difficult for investors without large pools of capital to invest at the required scale for both diversification and cost efficiency. An alternative way of gaining exposure is through the public market.

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