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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, general

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.

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