Efficient portfolio diversification in real estate


Grosvenor Americas’ Director of Research, Brian Biggs, looks at how physical real estate investors can strike a balance between maximizing portfolio diversification and minimizing management costs.

Portfolio diversification is one of the fundamental risk management tools investors use to maximize returns and minimize risk. Most work on portfolio diversification comes from liquid markets, such as equities.

Physical real estate markets, by contrast, are relatively illiquid, carry a high degree of idiosyncratic locational risk, trade in large lot sizes, and have much less pricing transparency compared to equities. Compared with equities, constructing a diversified physical real estate portfolio can be cumbersome and costly.

How, then, should physical real estate investors diversify their portfolios? Given the large number of investable cities, how can investors strike a balance between maximizing portfolio diversification and minimizing management costs? 

Click below to read the full report as Brian examines how to strike this balance and what an “ideal” number of cities might be for a US physical real estate portfolio.

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