Portfolio Efficiency : The Case of Swedish Real Estate Holdings
Background:The history of the property market has for long been characterized by inefficiency and lack of information due to the special features of the real estate investment class. Portfolio diversification of other asset classes has traditionally been evaluated with the help of Modern Portfolio Theory (MPT), and in latter years research has shown that those theories are also applicable on real estate assets. The Swedish property index, SFI/IPD, constitutes of some of the largest institutional investors of Sweden and was established in 1997. The goal of this index is to improve the conditions for financial appraisals of real estate assets.Purpose:The purpose of this thesis is (A) to describe how the major institutional investors of Swe-den diversify their real estate portfolios and (B) to analyze the identified strategies’ efficiency according to the Swedish property index and the MPT framework.Method:The study was initiated by a qualitative pre-study in the form of an interview with the CEO of SFI/IPD, Christina Gustafsson, complemented by extensive literature treatment. The main empirical study, also qualitative, constituted of questionnaires sent out to managers with leading positions in the five largest institutional investor firms in Sweden. A number of portfolios were simulated based upon those findings, and were subsequently analyzed with the help of SFI/IPD data and the MPT framework so as to identify their respective efficiency.Conclusion:The portfolios simulated from the empirical study showed potential for efficiency improvements when evaluated by the MPT framework. All portfolios were dominated by office properties and properties located in Stockholm, and, from that point of view, the in-vestigated investors share a fundamental strategy. The thesis also concludes that each simulation became more efficient when applying a maximum restriction to the share of office properties. This effect was due to an increase in the weight of the dominant asset class in the identified super-efficient portfolio; the residential properties.
School:Högskolan i Jönköping
Source Type:Master's Thesis
Keywords:sfi ipd institutional investors property portfolios real estate diversification modern portfolio theory mean variance optimi zation efficient frontier index
Date of Publication:01/01/2005