Real Estate Fund Flows and the Flow-Performance Relationship

  • David H. Downs
  • Steffen Sebastian
  • Christian Weistroffer
  • René-Ojas Woltering


Convexity in the flow-performance relationship of traditional asset class mutual funds is widely documented, however it cannot be assumed to hold for alternative asset classes. This paper addresses this shortcoming in the literature by examining the flow-performance relationship for real estate funds, specifically open-end, direct-property funds. This investment vehicle is designed to provide the risk-return benefits of private market real estate and is available to retail investors in many countries across the globe. An understanding of fund flow dynamics associated with this investment vehicle is of particular interest due to the liquidity risk associated with holding an inherently illiquid asset in an open-end structure. Our analysis draws on the theoretical foundations provided in the literature on mutual fund flows, performance chasing, liquidity risk, participation costs and dynamics across market cycles. We focus on German real estate funds from 1990 to 2010 as this is the largest market globally and there is a high level of confidence in the data. The results show that real estate fund investors chase past performance at the aggregate level and the relationship between flows and relative performance is asymmetric (i.e., convex) at the individual fund level. Fund-level liquidity risk tends to weaken convexity, while sensitivity increases with higher participation costs. We find the flow-performance relationship varies across time, though our interpretation is asset and investment vehicle specific. The implications are applicable to investors and fund managers of open-end, direct-property funds and, more broadly, other alternative asset funds where the underlying asset may not be liquid.


Open-end real estate funds Fund flows Flow-performance relationship Liquidity risk 

JEL Classification

G11 G14 G24 



We received excellent feedback from several discussants, including Aleksandar Andonov (2014 MNM Conference), Piet Eichholtz (2015 AREUEA-ASSA), and Michael White (2014 AREUEA-International) as well as helpful comments by participants at those presentations. We appreciate the comments and suggestions of an anonymous referee and the special issue editor S.E. Ong. All authors are grateful for generous support provided by the International Real Estate Business School (IREBS) Foundation. Downs gratefully acknowledges support by The Kornblau Institute at Virginia Commonwealth University. The views expressed in this article are those of the authors only and do not necessarily reflect the views of the European Central Bank.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  • David H. Downs
    • 1
  • Steffen Sebastian
    • 2
  • Christian Weistroffer
    • 3
  • René-Ojas Woltering
    • 2
  1. 1.The Kornblau InstituteVirginia Commonwealth UniversityRichmondUSA
  2. 2.IREBS International Real Estate Business SchoolUniversity of RegensburgRegensburgGermany
  3. 3.European Central BankFrankfurt am MainGermany

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