Performance Measurement

Performance Measurement

  • Submitted By: hunty87
  • Date Submitted: 01/11/2009 7:37 AM
  • Category: Business
  • Words: 1223
  • Page: 5
  • Views: 733

The nature, merits and difficulties of undertaking comprehensive performance measurement and the analysis of real estate investment portfolios. Historically, the measurement and analysis of the performance of investment portfolios was first culminated in America by the Bank Administration Institution (BAI)(1968). The report conducted by the BAI had widespread acceptance in the USA, however were not generally adopted by the analysts in the UK (Brown, 1986). There are very many ways in which property differs from other investments the three key aspects are set out below. In general, the property market provides: A medium level secure income A different performance cycle A lower level of risk. (Brown, 1986) To assess the progress of the investments in meeting the contractual liabilities of the fund. To ascertain the magnitude of the rate of return on the overall fund and on each asset category. To compare the returns obtained on the fund with a yard stick. (Hager, David P. and Lord, David J. 1985) Sykes makes the assertion that single period performance measurement is suspect. He provides no empirical evidence in support of his views. Like Hager and Lord, Sykes believes that performance measurement over periods greater than one year is likely to produce better results. This suggests that performance measurement over an infinity long period would provide definitive results. Both Hager, Lord and Sykes fall into the ‘time diversification’ trap which means that the variance of returns for an asset or portfolio will diminish the longer the period over which the returns are measured. Adopting this approach, it is possible to reduce the variance to zero by measuring returns over very long periods. This may sound positive, but it suggests that investors have an infinitely long investment horizon and can afford to wait for their expectations to be realised. The reality, however, is far from this, investors usually have a time...

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