Real estate is an institutional asset class in both listed and unlisted forms, yet all too often market participants interpret unlisted real estate through the lens of listed real estate securities, giving significant scope for cognitive dissonance. Modern asset allocation seeks to dynamically deploy capital across competing investments, but fitting real assets into an allocation model typically requires the interpolation of data points to compensate for the low number of observed returns from private-market investments.

Given this, investors should view listed and unlisted real estate as complementary, rather than competing or substitutable, asset classes. This article examines reasons to be wary of conflating listed returns across to private-market assets, both to inform investor considerations as to when asset allocation might use a listed proxy for the direct market and when such proxies need to be treated with caution.

Introducing the problem