The impact of age and size on real estate fund returns

Abstract

The purpose of the thesis is to provide an overview of the Finnish real estate investment market and to examine the impact of funds age and size on the returns of Finnish non-UCITS real estate investment funds. A comprehensive literature review on the impact of age and size on the performance of funds in general is carried out as a basis for the study. The objective of the study is to explain the impact of age and size on Finnish open-ended non-UCITS real estate investment funds and to analyze whether investors can use this information in their decision-making.

The empirical part of the study examines twelve Finnish real estate investment funds between 2012 and 2021. In order to carry out the empirical study, a benchmark index is created for each fund, corresponding as closely as possible to the content of the fund, and the annual excess returns of the funds compared to the indexes are calculated.

The empirical study found that the expected return of funds declines as the age of the fund increases. This finding is in line with the hypothesis and previous findings. On average, the funds produced positive excess returns in the first two years, with the second year being by far the best performing year of the study period. The better performance of the funds and the particularly good second year returns are explained by the valuations received in the first few years and the desire to show higher returns at the early stage. For the size variable, previous studies indicated greater variation in the results and the empirical section followed a similar pattern with no significant results for size in the regression analysis were received.