A study published in the Journal of Portfolio Management purports that real estate investment trusts (REITs) outperform U.S. closed-end private equity real estate (PERE) funds by 165 basis points annually, as detailed in an article in Institutional Investor.

Using an apples-to-apples comparison, the authors of the study used a sample of 375 PERE funds against an index of listed REITs and an index of private real estate funds. On average, the study found, the public markets were a better investment, especially when factoring in risk. The performance disparity grew even wider as risk increased, the article goes on to say.

Public markets also hold liquidity and leverage advantages over private. Investors and managers can enter and exit deals as much as they’d like in public markets, while private has less flexibility. And companies that might over-leverage have equity analysts to act as checks on them. That level of oversight doesn’t exist in private markets.

Thomas Arnold, one of the authors of the study, noted that private funds could still outperform public ones by being more strategic in real estate allocations. He expects investors to make bigger real estate allocations to public markets in the future, as well as an increased pushback against fee structures in the private space.

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