The trouble with the numbers: Making comparisons between performance statistics nearly impossible
- February 1, 2024: Vol. 11, Number 2

The trouble with the numbers: Making comparisons between performance statistics nearly impossible

by Geoffrey Dohrmann

I’ve noticed over the years people in this industry take a far too casual stance when it comes to sharing (and comparing) performance numbers.

First of all, a performance number is only comparable if the inputs that go into the formula for calculating those numbers have been uniformly defined and collected, and if the formulas that are used to calculate are identical.

According to John Baczewski, who helped chair the effort by PREA and NCREIF to create their jointly issued Real Estate Information Standards (REIS), there are currently 549 defined terms in the Global Definitions Database. And, according to Baczewski, a change in the way even one of those is defined potentially can have a measurable impact on the nature of the formula input data.

Members of PREA and NCREIF are encouraged to apply those standards when pulling information to enter into their client and consulting portfolio management and reporting systems, and when calculating the numbers that go into or are produced by those systems. Compliance is totally voluntary, and there is no oversight mechanism to determine who is compliant, if they are compliant, and to what degree.

Firms that are not members of PREA or NCREIF — and there are many — are not expected to comply with these standards. Some do, of course, but many do not.

Assume a given property. Now, assume that same property potentially could be owned by one of the more than 2,874 different investment management firms and more than 4,041 operating companies tracked by our IREI.Q database. (We track most, but some managers and many operators still escape our efforts to monitor them and their investment programs.)

Without enforceable standards and a central authority with the power to enforce those standards, and without the employment of the same formula for calculating the numbers those inputs go into, the chances you’re going to end up with the same set of performance numbers from every one of those investment managers is next to nil.

Now, multiply that problem by the number of properties these investment managers actually own on behalf of their investor clients (the 25 NFI-ODCE fund managers alone collectively manage more than $309.1 billion of gross real estate assets, as of third quarter 2023), and you can see how noncomparable any set of performance numbers you’re going to consider actually are.

The infrastructure investment markets suffer from the same disease. Every private market does.

There is a potential way around this, of course. As an investor or a consultant, you can require the managers reporting to you to submit raw inputs rather than finished performance numbers. You can audit those numbers to make sure you’re dealing with apples-to-apples inputs and adjust those numbers to conform to a uniform set of field definitions. Then, you can apply identical formulas to arrive at the performance numbers produced by those inputs.

But I know of no commercially available database in the market that employs this approach. Most, if not all, instead rely on investment managers to supply the performance numbers their databases supply to their subscribers, or they rely on performance numbers pulled from investors’ websites.

What that means is the data those subscribers are accessing are almost totally meaningless when it comes to making reliable comparisons of these investment program and investment manager performance numbers.

This is precisely why Institutional Real Estate, Inc.’s IREI.Q database doesn’t attempt to supply our subscribers with performance numbers, and why we do not publish performance numbers in our publications. We find it difficult to understand how publishing performance numbers we know aren’t comparable serves the interests of the members of our investor readers and database subscribers around the globe. Publishing those numbers, either in our publications or in our database, only serves the interests of those managers who have gamed their numbers to present a brighter picture of their numbers than they perhaps deserve, at the expense of those managers who have done their utmost to comply with whatever agreed upon standards the industry has attempted to develop.

Sometimes, when I discuss this issue with potential database subscribers, they’ll respond, “well, at least it’s some data.” It is, but it’s not comparable data and, in my opinion, sharing it potentially misleads potential investors, confuses and frustrates competitors, and does much more harm than good.

I have even offered to make up performance numbers, enter them into our database and make them available to subscribers. “No, no,” the potential subscribers always respond. “We want real numbers, not made-up numbers.”

If it is real numbers you want, then stop looking at the numbers so many others are reporting. Unless you can be assured the input to the calculations of those numbers have been uniformly gathered and the formulas used to calculate them are identical, the numbers you’re relying on are made-up numbers.

It would be easy for us to simply mirror what other publishers and database managers are doing, of course. But it would not be keeping true to our core values.

We do publish numbers issued by organizations such as NCREIF and MSCI. (Unfortunately, this information is available on an aggregate basis and not on a program-by-program or property-by-property basis. Investment consultants attempt to do the same thing when reporting results to their clients, but these results are only available to their clients and vary in approach.)

The bottom line here: Who you are relying upon for data and information matters. And particularly when it comes to comparing performance numbers, it is important to be careful. Be very, very careful. It’s a wacky world out there.


Geoffrey Dohrmann is president and CEO, publisher and editor-in-chief of Institutional Real Estate Inc., parent company to Real Assets Adviser.

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