Property

Question 1

Listed investment trust exposure

Answer 1

to property market.

Question 2

Listed investment trust is

Answer 2

publicly traded companies but they are focusing on the property market. They are only involved in the business of property management.

some are involved in the business of fund management.

Question 3

impact of shock on

Unlisted Property Fund

short term

Answer 3

short term return is higher and lower std and zero correlation with listed REIT appears to improve risk return trade off and provide diversification benefits

subject to the same economic shock but in short term not reflected in returns.

Question 4

impact of shock on

Unlisted Property Fund

Answer 4

_{do not report unit price everyday. does not reflect negative industry shock at all}

_{Does not change at all. only change at the end of the year when portfolio manager decides to review the portfolio and decides to generate updated value report and unit price. negative impact of shock will be incorporated at the end of the year}

Question 5

impact of shock on

iliquid REIT

Answer 5

_{not actively traded. Trading to facilitate price discovery to incorporate new info into unit price. takes 2 months to incorporate negative industry shock into unit price}

_{partially incorporated. unlisted property fund > lower std and higher return > liquid REIT}

Question 6

impact of shock on

Liquid REIT

Answer 6

_{shock is immediately incorporated in the unit or share price. there will be a drop in the value of the property.}

Question 7

impact on shock and horizon

illiquid assets and unlisted property fund.

Answer 7

due to the time lag of incorporating the shock into the unit price of the illiquid asset or unlisted asset, when looking at average return of these assets, cannot use short term data interval.

short term return does not reflect true underlying value changes

Question 8

message from the shocks on assets

Answer 8

underlying asset values are exactly the same for each fund over time

but thin trading and appraisal valuations tend to bias downards standard deviations and correlations by showing smoother returns because there is a time lag for adjustments to show

std and correlation likey to underestimate value of iliquid assets or unlisted asset

Question 9

what determines the value of australian houses

Answer 9

supply and demand

Question 10

labour policy

Answer 10

policy to change negative gearing, that may shape residential property market in AU

Question 11

Given the client’s objectives and constraints, advise possible assets swaps of direct property (family home and investmnet properties) with other assets that may potentially improve the risk-return trade-off of the total portfolio. Explain why.

Answer 11

WE Hedged

illiquidity risk and fundamental risk (AU economy)

Question 12

What is the nature of the economic exposures that arise from Australian DP? (That is, to what extent does DP contain exposure to interest rates, inflation and economic growth?)

• The simple correlations suggest

Answer 12

t higher bond yields may be good for DP returns. However, when all 4 economic variables are included in multiple regressions, the sign on ∆BY reverses to negative (t-stat insignificant for quarterly, yearly and 3 year regressions, significant for 5 year regressions). Meanwhile all 3 other variables remain positive and significant.

This suggests that bond yields were acting as a proxy for economic growth and/or inflation under the simple correlations; and that the marginal effect of an increase in bond yields on property returns is lower (as might be expected.)

Question 13

What is the nature of the economic exposures that arise from Australian DP? (That is, to what extent does DP contain exposure to interest rates, inflation and economic growth?)

Answer 13

Simple (univariate) correlations reveal that DP is positively related to CPI, inflation surprise, GDP and change in bond yields (although latter only occurs up to 3-years, not over 5-years).

This suggests that DP may be exposed to economic risk, but might hedge against inflation risk

Question 14

What are the key similarities and differences in the economic exposures as compared to LP and AE? (That is, to what extent might DP offer genuine diversification benefits as a ‘growth’ asset, due to differing exposures to fundamental economic factors?

AE and LP have a negative correlation

Answer 14

AE and LP have a negative correlation with ∆BY, at least up to 3-years. However, given the multiple regression results quoted above, not much store should be placed on the differing simple correlations for this variable.

In multiple regressions, the effect of ∆BY on AE is only highly significant for 3-year measurement intervals

Question 15

What are the key similarities and differences in the economic exposures as compared to LP and AE? (That is, to what extent might DP offer genuine diversification benefits as a ‘growth’ asset, due to differing exposures to fundamental economic factors?

Answer 15

• DP, LP and AE all appear to be positively correlated with the Australian economy to a roughly similar extent (based on simple correlations).
• DP has the highest correlation with inflation, particularly inflation surprise, of the three assets.

Question 16

Does either Australian DP or LP provide a reliable hedge against Australian inflation? (Note: Hedging unexpected inflation might be considered more important, to the extent that expected inflation should already be discounted in asset prices.)

Is direct property a reliable inflation hedge?

Answer 16

• DP property appears to provide an inflation hedge. Evidence includes both simple correlations with CPI and inflation surprise, as well as the multiple regression analysis referred to above.
• Note: Evidence of cointegration between DP and the CPI index (according to other research not shown to class). That is, DP and prices seem to be related in ‘level’ terms

Question 17

Does either Australian DP or LP provide a reliable hedge against Australian inflation? (Note: Hedging unexpected inflation might be considered more important, to the extent that expected inflation should already be discounted in asset prices.)

• Relation between inflation and both LP and AE

Answer 17

is mixed and generally less clear, as results vary with analysis (simple correlations vs regressions; time interval).

Question 18

To what extent can DP and LP be viewed as substitute assets?

Answer 18

Analysis of data suggested that DP and LP are substitutes to some extent, but by no means total substitutes.

The differences noted include

• Correlation remains less than 1, i.e. the relation is partial, even over long term.
• Correlations of DP and LP with equities, bond yields and inflation differ sufficiently to suggest that there may be different fundamental economic exposures.
• Timing of returns differs

– DP appears to lag LP

Also: • Investment horizon is a key consideration in the extent to which they are substitutes. Standard deviation and correlations tend to converge as holding period lengthens

Question 19

Other considerations for judging whether DP and LP are substitutes include:

for

Answer 19

1. Similar underlying asset, i.e. property
2. Common fundamental risk exposure to economy

Question 20

Other considerations for judging whether DP and LP are substitutes include:

Against

give 3 more

Answer 20

4. Underlying asset exposures are not exactly the same, as differences can exist in property sector mix, impact of non-property operations and leverage. LP has more bias to retail, contains other operations, and tends to be more geared.
5. Differing exposure to inflation. DP seems to provide an inflation hedge.
6. Different sources of excess return. LP relies on security selection; while DP offers possibility of capturing economic value-add through improvements made to the asset

Question 21

Other considerations for judging whether DP and LP are substitutes include:

Against

give 3

Answer 21

1. LP is relatively liquid, DP is illiquid.
2. Different valuation processes and supply/demand balances between DP and LP can lead to different short-term return patterns (and hence short-term diversification effects)
3. LP is easier and less costly to access than DP

Question 22

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group?

Disadvantages, Risks, Challenges

cost

Answer 22

(vi) More costly, with higher transaction costs and management fees

Question 23

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group?

Disadvantages, Risks, Challenges

scale?

Answer 23

(v) Larger scale is often required to access some alternative assets effectively, i.e. to either support management of the investment, or to get access to desired managers or assets

Question 24

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group?

Disadvantages, Risks, Challenges

governance

Answer 24

v) Governance-related issues. Monitoring harder due to less transparency; pricing under appraisal valuations; equity issues can arise for investors entering and leaving the fund at ‘stale’ unit prices

Question 25

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group? Disadvantages, Risks, Challenges Portfolio management and why

Answer 25

portfolio management becomes trickier, e.g. selecting managers; managing cash flow; rebalancing to target asset weightings; hedging is more difficult or not possible. Some flexibility is lost

Question 26

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group? Disadvantages, Risks, Challenges give 2

Answer 26

(i) Increased peer risk (ii) Greater illiquidity (for majority of alternative asset classes)

Question 27

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in last unlisted asset exposure relative to their peer group? smoothed returns

Answer 27

Smoothed returns give appearance of lower volatility (although mainly optics, and not real)

Question 28

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in alternative assets relative to their peer group? potential access to

Answer 28

Potential access to additional sources of returns, e.g. manager skill applied in less efficient markets; economic value-add; possibly an illiquidity premium; exotic betas (i.e. when asset class is transitorily mis-priced for very attractive returns)

Question 29

What advantages might be gained by an institutional investor, such as a DC pension fund, from holding substantial over-weighting in alternative assets relative to their peer group? most significant is

Answer 29

diversification benefits

Question 30

hedge fund strategies or styles. Credit long/short What (if any) are the main market risk exposures?

Answer 30

* Credit spread (probably) * Illiquidity * Poor position taking (selection or timing)

Question 31

hedge fund strategies or styles. Convertible arbitrage What (if any) are the main market risk exposures?

Answer 31

Basis risk (imperfect match of assets) Illiquidity

Question 32

hedge fund strategies or styles. Merger arbitrage What (if any) are the main market risk exposures?

Answer 32

Mergers fail to proceed (market falls, regulatory, etc)

Question 33

hedge fund strategies or styles. Distressed securities What (if any) are the main market risk exposures?

Answer 33

• Economy and markets • Poor selection • Illiquidity

Question 34

hedge fund strategies or styles. (v) Quant marketneutral equity What (if any) are the main market risk exposures?

Answer 34

• Poor selection (i.e. observed anomalies do not recur) • Correlated bets across like investors

Question 35

hedge fund strategies or styles. Global macro What (if any) are the main market risk exposures?

Answer 35

• Manager gets their market calls wrong

Question 36

hedge fund strategies or styles. Global macro (a) Source of alpha generation

Answer 36

* Market forecasting * Exploit inter-market pricing inconsistencies, e.g. long cheap markets, short expensive market

Question 37

hedge fund strategies or styles. Quant marketneutral equity (a) Source of alpha generation

Answer 37

Security selection (mainly via exploiting ‘anomalies’ like EPS revision, price momentum, value, etc)

Question 38

hedge fund strategies or styles. Distressed securities (a) Source of alpha generation

Answer 38

* Capture risk premiums (liquidity, bankruptcy) * Risk transfer and liquidity services (earn return for allowing investors to sell out of unwanted holdings * Security selection

Question 39

hedge fund strategies or styles. (iii) Merger arbitrage (a) Source of alpha generation

Answer 39

* Risk transfer and liquidity services (earn return for allowing investors to sell out of target company) * Using voting rights to influence bidder to pay higher price?

Question 40

hedge fund strategies or styles. (ii) Convertible arbitrage (a) Source of alpha generation

Answer 40

Arbitrage across partly disconnected markets • Some security selection

Question 41

hedge fund strategies or styles. Credit long/short (a) Source of alpha generation

Answer 41

* Security selection * Market timing * Access credit and illiquidity risk premiums? (albeit more beta than alpha)

Question 42

what limit should be placed on illiquid assets

Answer 42

maximum weighting of 10%, or 20% at the very most

Question 43

Problem with diversifying to alternative assets

Answer 43

the assets are illiquid

Question 44

Problems with illiquidity true asset value

Answer 44

True asset value is often unknown. The value of an asset is crystallised only when a trade occurs. In unlisted assets, trades occur irregularly. In the interim, the value of unlisted assets can only be estimated, typically using ‘appraisal’ methods. The realisable value for a particular asset may diverge significantly from the estimated value, especially after the cost of transacting

Question 45

Problems with illiquidity failure to transact

Answer 45

transacting may even become infeasible because no market exists

Question 46

Problems with illiquidity transaction cost

Answer 46

- cost of arranging transactions, e.g. brokerage, professional fees, information, documentation and search costs, and so on. - price concession offered to secure a trade, also known as ‘market impact’ cost. Of the two elements, market impact is the most relevant. It can vary with market conditions, and may result in a (bad) ‘haircut’ if an unplanned sale occurs during a time of market stress.

Question 47

three reasons why historical data can overstate the diversification benefits from unlisted assets. The most obvious reason is the

Answer 47

return-smoothing effects of appraisal valuations, which bias downwards both volatility and correlations with other assets

Question 48

illiquidity premium

Answer 48

As compensation for illiquidity risk – This is the additional return for bearing the risk that an illiquid asset becomes more costly or difficult to sell in adverse time

Question 49

Why may illiquidity premium arise due to security mispricing

Answer 49

Mispricing can provide a potential source of excess returns in any market. The potential is arguably greater in illiquid markets, to the extent they are under less intense scrutiny and hence may be less efficient. For this reason, Russell typically recommends active management of assets

Question 50

Drivers of risk and return in the short term Unlisted asset

Answer 50

reported returns for unlisted assets reflect a combination of underlying economic drivers and the asset valuation process.

Question 51

Drivers of risk and return in the short term LP

Answer 51

In the short run, the listed form is often driven by equity market fluctuations rather than the underlying asset.

Question 52

Sources of excess returns LP and DP

Answer 52

Excess returns or ‘alpha’ in listed markets largely arise from security selection, and perhaps market timing. In unlisted markets, value-added activities or asset improvement is a significant source of excess returns.

Question 53

Basis of pricing LP fluctuation in prices

Answer 53

Listed market prices can fluctuate widely relative to those in unlisted markets. This is because listed markets involve almost continuous trading that is affected by short term sentiment or noise

Question 54

Basis of pricing LP and DP

Answer 54

Listed assets are priced continually in open markets unlisted assets rely on appraisal valuations; unlisted assets are usually valued infrequently by one or two expert valuers using an appraisal based valuation method. When revaluations occur they tend to be related to the recent past. There is also the possibility that the valuation process may be unduly influenced by the client for whom the valuation is being prepared

Question 55

Basis of pricing LP

Answer 55

Listed assets are priced continually in open markets,

Question 56

Liquidity differences LP and DP

Answer 56

Listed assets provide better liquidity. However, unlisted assets may give access to some illiquidity premium

Question 57

Implementation and Governance Unlisted assets

Answer 57

Unlisted assets tend to involve greater practical challenges. Access to unlisted assets is typically more costly, and access to the right managers can be more difficult and critical

Question 58

when REIT contains other business activities

Answer 58

listed assets will contain elements with risk/return characteristics similar to the broader listed equities market, rather than providing pure exposure to the underlying physical assets.

Question 59

excess return for property there is evidence

Answer 59

For property, there is evidence of median manager excess returns, particularly for non-core property. It is difficult to determine if this reflects returns from beta (compensation for risk) or alpha (manager skill) and is probably a combination of both.

Question 60

excess returns PE

Answer 60

The median private equity manager has underperformed the listed market after fees. The most likely reason is that private equity managers typically capture some of the alpha they generate for themselves in the form of higher fees. nevertheless, top quartile managers have continued to produce significantly positive alpha. The implications are that skill in manager selection, access to skilful managers and an ability to negotiate fees are critical for success.

Question 61

excess return infrastructure

Answer 61

During the period June 1994 to July 2008, the Australian listed infrastructure market (represented by the UBS Australian Infrastructure & Utilities Index) produced an excess return above bonds of 12% pa however, this index is dominated by a handful of notable Macquarie stocks that performed strongly, particularly upon listing. These strong listing returns were not included in the unlisted data, hence biasing the results towards listed.

Question 62

Illiquidity also entails certain risks.

Answer 62

financial and other business risks. These relate to the possibility of needing to sell during times of market stress.

Question 63

The extent to which ‘illiquidity premiums’ are generally available is debatable

Answer 63

capturing such premiums can be investor specific, since it is based on the ability to buy at a discount when others want to sell and then being able and willing to sell when everyone wants to buy average liquidity premium is probably not as great as most investors expect i.e. less than 2%

Question 64

ACCESS TO MANAGERS listed and unlisted

Answer 64

easier to gain access to superior managers in the listed rather than unlisted space as managers of unlisted assets tend to give preference to their existing client base, creating entry difficulties for new and particularly smaller investors.

Question 65

governance unlisted

Answer 65

under less scrutiny Greater asymmetry of information in private markets may provide greater opportunities for skilful managers and investors to extract excess returns.

Question 66

governance listed

Answer 66

companies need to comply with stock exchange regulations and requirements that ensure information is made publicly available.

Question 67

Investment costs arising from management fees, transaction costs, taxes, unlisted

Answer 67

investing in unlisted assets typically incurs not only management fees, but also transaction costs in the form of legal and accounting fees arising from the due diligence process Higher costs do not necessarily mean that unlisted investments have lower net returns.. Although research suggests that after fees the median manager in private equity underperforms the listed equities market (see Phalippou, 2007), there is less evidence of underperformance after fees in the property and infrastructure markets.

Question 68

he true risks inherent in unlisted investments are related to

Answer 68

the type of assets involved, the amount of leverage employed and the illiquidity of the investment vehicle.

Question 69

When returns are measured monthly or quarterly, volatility for unlisted assets is

Answer 69

significantly lower than its listed counterparts. When the data frequency is reduced to yearly or longer, the volatility and correlations of unlisted assets rise dramatically, approaching the levels of their listed counterparts.

Question 70

Over shorter time frames, listed infrastructure and listed property are more correlated to

Answer 70

the broader listed equities market than their underlying assets. In the long run, listed infrastructure and listed property became more correlated to their underlying assets

Question 71

Investors viewing their portfolio from a reported performance perspective holding unlisted assets

Answer 71

Investors viewing their portfolio from a reported performance perspective may see a short term diversification benefit in holding unlisted assets. However if investors view their portfolio from an economic exposure perspective, this apparent diversification benefit is somewhat illusionary. as investors increase the time frame over which returns are calculated, the volatility of unlisted returns rises to a level more in line with listed market returns.

Question 72

in the short term, listed and unlisted are over a longer time frame

Answer 72

might be considered complementary as they have markedly differing impacts on overall portfolio returns. , the returns and risks of listed and unlisted assets tend to converge and hence become closer substitutes.

Question 73

DECISION VARIABLES 1. Expected returns opportunities

Answer 73

evolving nature of infrastructure in general, it is expected that more assets will be securitised over time, particularly as projects become more mature. Hence at present, global listed infrastructure is somewhat of a new and evolving asset class that is expected to present alpha opportunities similar to global listed property; Given that fees are significantly lower in the listed space, global listed infrastructure may present a compelling case for smaller investors interested in alpha potential who are unable or find it difficult to access such opportunities in the unlisted space.

Question 74

DECISION VARIABLES 1. Expected returns listed

Answer 74

The expected risk and returns of global listed infrastructure would be likely to lie between core and opportunistic (unlisted) infrastructure. An investor that desires a more conservative infrastructure investment but faces liquidity constraints can restrict the listed infrastructure universe to mature income producing assets.

Question 75

DECISION VARIABLES 1. Diversification Listed infrastructure

Answer 75

In contrast, global listed infrastructure offers little diversification over the short run as it is more closely tied to the listed equities market rather than the underlying infrastructure assets. However by taking a longer time frame, global listed infrastructure becomes more closely aligned to unlisted infrastructure. It hence should provide longer term diversification benefits.

Question 76

DECISION VARIABLES 1. Diversification Unlisted infrastructure

Answer 76

provides diversification benefits by improving the spread across different sources of return, mitigating the effects from fundamental risks and dampening reported performance risk

Question 77

DECISION VARIABLES 5. Peer risk Global listed infrastructure

Answer 77

Since global listed infrastructure is fairly new as a separate investment, it is likely that most investors would have a negligible or no direct allocation to this asset class. Investors that decide to invest in global listed infrastructure would be taking on peer risk. This peer risk would be heightened at times when there is a significant pricing differential between the listed and unlisted markets such as at the present. However, this peer risk should be relatively inconsequential, given the likely small allocations and linkage to equities (provided this allocation is funded out of equities). According to the Chant West June 2008 strategic asset allocation survey, Australian super funds have approximately 3% invested in unlisted infrastructure on average. super funds expected to hold 2% listed infra

Question 78

DECISION VARIABLES 4. Time Horizon Global listed infrastructure

Answer 78

For an investor willing to take a longer term view, the characteristics of the listed assets are more likely to resemble those of the underlying physical assets. Therefore global listed infrastructure may be considered a reasonable proxy for the infrastructure asset class. Conversely, by narrowing the time frame it is more likely that listed and unlisted would play a complementary role in an investment portfolio. Whether and how much unlisted infrastructure is held would depend on each investor’s tolerance of illiquidity. Also the type of infrastructure held (income or broad focus and core or opportunistic) would depend on the investment objectives.

Question 79

DECISION VARIABLES 3. Liquidity requirement

Answer 79

Investors that are interested in infrastructure but face liquidity requirements might prefer global listed infrastructure. T

Question 80

DECISION VARIABLES 3. Liquidity requirement

Answer 80

Investors that are interested in infrastructure but face liquidity requirements might prefer global listed infrastructure. T

Question 81

6. Amount of capital to invest global listed infrastructure

Answer 81

The amount of capital available to invest in infrastructure may also have a bearing on whether investors can access unlisted infrastructure. Smaller investors may find it difficult to access unlisted infrastructure. For these investors, global listed infrastructure allows them to gain access.

Question 82

real estate asset allocation percentage

Answer 82

institutional real estate asset allocations range from 5% and 15% 5% should be minimum policy target for an investor. less than 5% is not enough to produce meaningful diversificaiton benefits or positive impacts on overall portfolio returns Conversely, real estate allocations are typically no greater than 15% due to overall portfolio liquidity considerations investors who have exposure to other alternative such as PE, equity and hedge funds should consider a 10% target

Question 83

Core and non-core investments if primary objective is to provide diversification enhance portfolio returns

Answer 83

majority of the portfolio will be comprised of core investments large percentage of portfolio will be inveseted in non-core strategies

Question 84

Core and non-core investments non-core assets include

Answer 84

non-traditional property types e.g. lodging/resorts, senior housing

Question 85

Core and non-core investments non-core assets focus more on

Answer 85

capital appreciation

Question 86

Core and non-core investments non-core assets

Answer 86

investors may consider non-core assets through value-added or opportunistic strategies as a supplement to their core investment

Question 87

Core and non-core investments core investments what should it emphasise

Answer 87

traditional property types (office, retail, industrial and apartment); operating assets; limited use of financial leverage (30% of total capital)

Question 88

Core and non-core investments core investments are intended to

Answer 88

limit risk and prvide relatively stable rates of return at least 2/3 of total core investemnt will be derived from income

Question 89

example of illiquidity of alternative assets during GFC

Answer 89

During GFC because of credit crunch and illiquidy natuer of alternative assets, many investors suffered. Endowment funds had substantial asset allocation in AA. missed stock market recovery because of illiquidity of AA. no way to exit investment. No counterpart to buy these alternative assets. They had to stick with sub optimal portfolio

Question 90

Another reason for AA

Answer 90

. Could be an area to generate excess return to beat the market. Some assets have chance to provide additional return or excess return alpha. Sometimes might get exotic beta from the assets as well.

Question 91

Property and infrastrure can be listed the returns behave

Answer 91

like listed stocks. Price incorporate noises and timely incorporation of new info

Question 92

Unlisted Property and infrastrure

Answer 92

No idea of true underlying value of invesmtents. Disclosure very minimal fund.

Question 93

non-core properties features

Answer 93

Higher risk, cash flow of these tenants. They may offer higher ER. When you have tenant. Sign lease and rent. Resturant owner- higher risk associated with cash flow of restaurant --\> negotiate higher rent with non-core prperties

Question 94

Opportunistic:

Answer 94

buy a piece of land and build new buildings, or convert commercial building to residential to take advantage of the rising demand •High leverage, high payoff risk, high spread of outcomes

Question 95

Value-added:

Answer 95

* Purchase property and upgrade/refurbish/change use * More leverage, lower rental stream, greater capital appreciation : buy an established building, refurbish it and have new tenants to increase value

Question 96

REITs (Real Estate Investment Trusts):

Answer 96

•Core property, but with some non-core; more leverage Listed therefore higher equity correlation and volatility

Question 97

Core property investments

Answer 97

– stable earning stream e.g. coles and woolies ## Footnote * Established, traditional property (eg office, retail, industrial) with steady rental income, long leases, low vacancies & low leverage * Safer diversification asset; inflation hedge if rents linked to CPI

Question 98

How can investor have access to other segments of property market?

Answer 98

buy real estate investment trust e.g. Godman group have exposure to property market around the eworld. Largest real estate investment trust in AU. Have indirect exposure to property markets in other countries

Question 99

How do individuals invest in property development or infrastructure projects?

Answer 99

Extremely wealtly, they can join syndicate institutional if allowed by mandate or can join syndicate

Question 100

Structuring property portfolios: issues Local vs global

Answer 100

Why bother staying local? (local inflation hedge and easier to access/manage)

Question 101

Structuring property portfolios: issues Listed vs unlisted

Answer 101

Liquidity (listed more liquid) Equity-like behavior of REITs (in short term) Investment horizon (short term: DP better diversifier but LP more liquid) Scale and access (smaller investors: REITS or pooled vehicles) Governance (stronger in LP) Substitutes or complements?

Question 102

Structuring property portfolios: issues core v non-core

Answer 102

core: Lower expected return, lower risk ## Footnote Non - core: Expect higher return but bear higher risk

Question 103

Supply/demand Imbalances - Investor clientele listed and unlisted

Answer 103

Listed: individuals, institutions Unlisted: institutions, high net-worth individuals; otherwise, join unisted property trust Institutional investors, have clear definition of what exposure they would like inr total portfolio, may go to unlisted property trust

Question 104

Most of unlisted property trust have v REIT

Answer 104

Most of unlisted property trust have their own expertise. Managers experts n retail will invest in retail only With listed real estate trust, you have exposure to different segments of property market.

Question 105

Asset composition e.g. Australian listed vs unlisted REITs

Answer 105

L: have concentrated exposure to retail U: More office and industrial

Question 106

Exposure to other business risks L

Answer 106

L: Exposure to other business risks. some are involved in construciton, operation of properties, management. E.g. goodman group Cash flow, revenue is more diversified. Exposure to additional business risk

Question 107

Gearing U

Answer 107

U: core investment managers invest in corporate properties, slow level of risk and use small amount of leverage. less than 30% Investment managers of Unlisted non-core, typically \> 70% gearing Beat benchamrk, beat alpha. Take on additional leverage to try to boost the alpha.

Question 108

Gearing L

Answer 108

L: Before GFC, mot of australia's real estate trust was 60-80% leverage ## Footnote Few of largest real estate investment trust was in big trouble in GFC. now 30-50%

Question 109

Cost U

Answer 109

higher fees charged by unlisted property trust, may have chance to generate enough alpha to compensate for higher fees. Unlisted property trust, managers may be good at identifying the end value of properties or change the use to generate additional deconomic value

Question 110

Cost L

Answer 110

very low Trade off. Low cost investment, have exposure to business exposure, funds management, property devlopment or even construction.

Question 111

Answer 111

Question 112

Over the long run, no matter the property trust is listed or unlisted,

Answer 112

the performance is going to be driven by economic performance of the country. Correlation of unlisted property will catch up with correlation of listed property. get close in the long run. Std and correlation.

Question 113

core unlisted as Inflation hedging b/c

Answer 113

listed real estate invetmnet trust, they are not good inflation hedging. Probably because with the price of lisetd REIT, they are exposed to different business segments With the unlisted property trust, esp over medium to long run, Unlisted real estae investment trust, generate income from rental. Likely that rental income is linked to inflation. Stated that there will be increase in rent every year e.g. 2.5%

Question 114

global listed property as Excess return generation

Answer 114

More chance of generating economic value at and generating exotic beta for some property market in the world, the pricing may be inefficient. May be a chance to generate excess return

Question 115

Given the client's objectives and constraints, advise possible assets swaps of direct property (family home and investmnet properties) with other assets that may potentially improve the risk-return trade-off of the total portfolio. Explain why. illiquidty risk

Answer 115

which might not satisfy their cash flow needs. Cash flow for retirement