The thinking behind premiums
In listed real estate funds, there is usually a differencebetween the market price and the net asset value. This difference is termed a premium – rarely a discount – and,while it may not be obvious at first sight, there are good reasons for it. The listed total portfolios represent added value not only due to diversification effects, but also as a result of risk adjustment and liquidity. A real estate fund, then, is valued higher than the total of its underlying properties.