Private Market Dynamics: Factor Sensitivities, Covariance Structures, and Systemic Implications - Evidence from Commercial Real Estate

Abstract

The objective of this thesis is to deepen the empirical and conceptual understanding of private commercial real estate markets, with particular emphasis on real estate private equity (REPE) and real estate private debt (REPD). It is motivated by the rapid expansion of private market investing and its growing integration into the financial system, alongside persistent frictions. The thesis addresses three research questions: (i) how systematic factors in REPE can be identified and assessed, both in terms of their composition and their macro-financial dependencies; (ii) what dynamic covariance structure links REPE and REPD, and under which conditions private debt operates as an effective risk management instrument; and (iii) whether REPD contains incremental predictive power for key parts of the financial system and can therefore act as a conduit for systemic risk.
The evidence shows three main results. First, REPE returns are largely driven by a single latent systematic factor, indicating strong common co-movement and limited diversification potential. This factor is predicted by listed REIT returns up to four quarters ahead and closely tracks monetary policy and business cycle conditions. Second, the REPE–REPD correlation is small but positive on average, highly time varying, and lacks a stable long run equilibrium. Instead, it shifts with macro-financial and private market liquidity conditions. Third, REPD predicts movements in stock and corporate bond markets, while banking related effects occur through credit conditions. At the same time, banking variables also predict REPD, consistent with REPD acting as a bidirectional node in a broader spillover network.
The thesis advances the literatures on real estate finance, private market intermediation, and macro-financial risk by establishing that private commercial real estate is both systematically priced and systemically connected. It provides new evidence on the factor structure of REPE, dependent covariance dynamics linking REPE and REPD, and the spillover potential of REPD.
Institutional investors exposure should be modelled as systematically priced claims with time varying macro-financial dependence, so expected diversification and risk contributions should be evaluated conditional on the prevailing macro-financial environment. For regulators, the central implication is macroprudential: Real estate private debt should be treated as a highly interconnected segment of non-bank credit intermediation with the capacity to propagate risk across financial markets, warranting explicit inclusion in macroprudential oversight.

Date of Award	5 Jun 2026
Original language	English
Awarding Institution	Bangor University
Supervisor	Rhys Ap Gwilym (Supervisor) & Hanxiong Zhang (Supervisor)