IPF Reports on Current Practices in Benchmarking Real Estate Performance

Benchmarks in investment management provide the basis on which performance is monitored
and judged. The IPF Research Programme (2015‐2018) has just published a review of
contemporary industry practice, conducted by a research team from Heriot Watt University,
which examined the selection and composition of benchmarks, addressing such issues as the
drivers for the choice of different benchmark types and how market benchmarks have changed
through time. The researchers also considered the implications of changes in benchmark
composition for performance measurement and asset selection by institutional investors and the
challenges for the future, having identified a need for a better understanding of the use of
benchmarks to reflect investment mandates, whether in multi‐ or single‐asset class portfolios.

The report also contains two detailed case studies that describe, at length, how formal real estate
benchmarking procedures took hold in the 1980’s and have been undergoing a process of
continuous adaptation to reflect markets ever since.

Andrew Angeli, Head of European Strategy and Research at CBRE Global Investors and chair of the
project’s steering group that oversaw the research commented: “Benchmarking lies at the centre
of the investment management process. It frames investment mandates and provides the basis
on which performance is judged and, in many cases, how managers are rewarded. The research
commissioned by the IPF provides a rich analysis of the usefulness of benchmarks and their
representativeness for investment decisions. The topic is as relevant as ever, especially as the
industry gravitates toward long income streams and alternative property types, which historically
have not adequately been reflected in traditional benchmarks.”

Edward Trevillion of Heriot Watt University said that there is a need for a better understanding in
the industry generally of what benchmarking means. “The challenge we have is to design a system
that can deliver a good balance between the measurement and attribution of performance and
which adequately captures risk and return through changing market conditions".

A summary of the report, Current Practices in Benchmarking Real Estate Investment Performance,
and two‐page At a Glance may be downloaded here. The full report, currently available to IPF members and Research Programme Sponsors only, will be
accessible to non‐members from January 2019.

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