Where is the illiquidity premium?

By Cohen & Steers

Investors allocate to private equity with the expectation of achieving superior returns relative to public-market investments. This approach has generally paid off in corporate private equity with return premiums that have compensated investors for the risk of illiquidity. However, the same cannot be said for real estate private equity.

In the modern REIT era since the early 1990s, the average private real estate manager has not delivered an illiquidity premium over full market cycles and, in fact, has often fallen short of listed real estate market returns. We believe the long-run outperformance of listed real estate over core and value-add/opportunistic real estate funds primarily reflects structural advantages of the REIT business model.

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