Zeitschrift für Betriebswirtschaft

, Volume 82, Supplement 1, pp 79–107 | Cite as

The liquidity crisis of German open-end real estate funds and their impact on optimal asset allocation in retirement

ZfB-SPECIAL ISSUE 1/2012
First Online:

Abstract

In course of the recent turmoil in the financial markets, several open-end real estate funds froze redemption of their units, resulting in unanticipated and unprecedented liquidity and performance shocks for investors. Against this background, we analyze the long- and short-term risk and return profiles of open-end real estate funds and their role in efficient multi-asset retirement portfolios. To this end, we introduce the Retirement Efficient Frontier, describing those investment strategies that minimize the lifetime probability of ruin for specific levels of periodic withdrawals from a given retirement wealth. We find that for low to moderate periodic withdrawals, efficient portfolios consist of up to 85% real estate fund investments in case fund units are continuously redeemable. Moreover we show that even if there is a monthly probability of 2.5% that redemption of fund units is temporarily suspended, the allocation into real estate funds in risk-efficient portfolios is only slightly affected. Yet, if funds additionally face a high risk of having to depreciate their property portfolio during a liquidity crisis, their share in efficient retirement portfolios is reduced significantly.

Keywords

Real estate Mutual funds Portfolio choice Liquidity Retirement planning 

JEL Classification

G11 G23 R33 J26 
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Copyright information

© Gabler Verlag 2011

Authors and Affiliations

  1. 1.Chair of Investments, Portfolio Management and Pension FinanceGoethe University FrankfurtFrankfurt am MainGermany

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