Model Insight - The Barra Private Real Estate Model (PRE2) Research Notes - May 2014
categories: Americas, EMEAI, Asset Allocation and Asset Liability Management, Factor and Risk Modeling, Investing (Investment Management), Portfolio Construction and Optimization, Risk Management, RMA, Asia Pacific, Alternatives, Multi-Asset Class, Research Paper, SHEPARD Peter, LIU Yang, DAI Yilin
Global private real estate represents significant opportunities for investors, but also major challenges, similar to global equity 30 years ago. A lack of information, and the smoothness of appraisal-based valuations, have left investors and risk managers guessing about the behavior of global real estate: a wide-range of speculation is commonplace, including the view that real estate is a low-risk, high-return diversifier. In this Model Insight, we shed light on this misunderstood asset class. With new data from IPD and a new Bayesian desmoothing methodology, the Barra Private Real Estate Model (PRE2) allows investors to make informed asset allocation and risk management decisions.