1. Andrew Baum and David Hartzell, Global Property Investment, 2011 Real estate as an asset class Andrew Baum and David Hartzell, Global Property Investment, 2011

2. What makes real estate attractive? It offers a reasonable return It offers low volatility It diversifies the portfolio It offers an inflation hedge Markets are inefficient

3. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? UK, 1971-2010 Return (%)Risk (%)CV Equities 16.229.8 0.54 Gilts 10.913.3 0.82 Property 11.5 1.00 Source:IPD, PFR 2011 Returns are geometric means, annual data CV = coefficient of variation

4. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? US, 1979-2010 Return (%)Risk (%)CV Equities 13.117.3 0.76 Treasuries 8.29.9 0.83 Property 8.99.2 0.97 Source: NCREIF, S&P, Barclays Capital 2011 Returns are geometric means, annual data CV = coefficient of variation

5. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, UK, 1971-2010 EquitiesGiltsProperty Equities1-- Gilts0.571- Property0.28-0.221

6. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, US, 1979-2010 Equities TreasuriesProperty Equities1-- Treasuries-0.031- Property0.150.301

7. Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? UK, 1971-2010

8. Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? US, 1979-2010

9. Andrew Baum and David Hartzell, Global Property Investment, 2011 Diversification? UK, 1990-2010

10. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Return and risk, 1990-2009 Asset classReturnRisk UK stocks15.930.5 UK gilts11.414.1 UK property11.7

11. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Correlations, 1990-2009 UK propertyUK stocksUK gilts UK property10.290.05 UK stocks0.2910.59 UK gilts0.050.591

12. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? A low risk portfolio – 11.5% return A medium risk/return portfolio – 13% return A high return portfolio – 14.5% return Limitations?

13. Andrew Baum and David Hartzell, Global Property Investment, 2011 The optimal portfolio? Portfolio return Standard deviationUK propertyUK stocksUK gilts 0.1150.0920.5970.0000.403 0.1300.1400.6150.3150.070 0.1450.2240.3450.6550.000

14. Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? Observed mean

15. Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? 100% equities 60% property 40% gilts

16. Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations? Gilts Property Equities

17. Andrew Baum and David Hartzell, Global Property Investment, 2011 Limitations Smoothing Specific risk and sampling error –– can you buy the index? Leverage Illiquidity Fees Execution challenges