Portfolio Optimisation

Portfolio optimisation in real estate investments refers to allocating capital to various real estate sectors (defined by geography or the main use of the asset), so that the total invested portfolio yields the maximum return with a certain risk level. Actions related to the current portfolio may require new assets, or the disposal of current assets in certain sectors, in order to achieve an optimal risk/return balance. Before deciding to enter a transaction, account should be taken of the effect of transaction costs, since these diminish the total return on the portfolio.

We currently offer the portfolio optimisation tool as a licensed software product. This tool communicates with Excel calculation templates, which are tailored to the client in every case.

The software is equipped with an effective optimisation algorithm (created and managed by Frontline Systems Inc). By running a large number of simulations within seconds, it tracks the most effective allocations for each geographical sector and asset type. Optimisation can be performed within a single country, or across multiple countries.

Key data uploaded to the software includes e.g.

• Real estate market return forecasts;
• Current portfolio return forecasts and risk level of each asset;
• Potential new acquisitions;
• Cross-sector correlations

Output reports and analysis include

• Optimal allocations to each real estate sector;
• Suggested transaction strategy to current portfolio;
• Risk report: distribution of portfolio performance with a selected strategy simulated over millions of outcomes