Is real estate private equity real estate? - Dynamic interactions between real estate private equity funds, non-real estate private equity funds, and direct real estate investments

In this study, we investigate long- and short-run synchronicity of the US-focused non-core real estate private equity (REPE) fund indices in relation to direct real estate (RE) and non-real estate private equity fund (PE) indices. We test cointegration relationships between the indices and specify different vector error correction models for opportunistic and value-added REPE funds. Our results are robust to various model specifications and suggest that in the long-run risk and return of both, opportunistic and value-added REPE markets follow the direct real estate market more closely than the private equity market. Moreover, short-run opportunistic REPE returns are significantly cointegrated with the direct real estate as well as the private equity market. For value-added REPE fund returns, we find short-run interactions only with the private equity market, but not with the real estate market. Based on the risk/return characteristics, we suggest to use the term real estate private equity over private equity real estate, as value-added and opportunistic real estate funds are a lot closer related to direct real estate than to private equity.