SLCG Economic Consulting's Logo


Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

Filter by:

Displaying 4 out of 4 results

Craig McCann's NASAA 2015 Presentation, Investments Through Time

By: Craig McCann (Sep 2015)

Investments Through Time: The Evolution of Investment Products and How They are Sold.

Securities-Based Lending

By: Paul Meyer (Jun 2015)

A perfect storm of soaring equity values and historically low interest rates has sparked a borrowing binge among securities investors. Securities-based loans ("SBLs") are a very attractive product for the broker-dealers who market them. However, SBLs impose substantial risks on borrowers. These risks are easy to overlook in a buoyant market but will eventually wreak havoc on the financial wellbeing of investors who are not prepared to withstand the next bear market. In this paper, Paul Meyer reviews the types of lending in which broker-dealers engage, describes how SBLs are regulated and marketed, and points out the considerable risks borne by a customer who borrows against his savings.

Fiduciary Duties and Non-traded REITs

By: Craig McCann (Jun 2015)

Published in the Investments & Wealth Monitor, July/August 2015.

A summary of SLCG's analysis of investor returns in 81 non-traded REITs. Investors are at least $45.5 billion worse off as a result of investing in the 81 non-traded REITs compared to investing in a diversified portfolio of traded REITs. Investors in non-traded REITs over the past 25 years would have earned as much or more investing in short and intermediate term US Treasury securities without bearing the risks and illiquidity of non-traded REITs. More than half of the non-traded REITs' $45.5 billion underperformance results from upfront fees charged to investors in the offerings. The rest of the underperformance results from conflicts of interest which permeate the organization structure of non-traded REITs and which are largely absent in traded REITs.

Non-traded REITs are so inferior to traded REITs that no advisor taking due care could develop a reasonable basis for recommending a non-traded REIT. Advisors recommending non-traded REITs either are not exercising due care or are succumbing to the corrupting influence of the extraordinary commissions sponsors pay for recommending non-traded REITs. The brokerage industry is well aware that recommending non-traded REITs is inconsistent with fiduciary duties.

An Empirical Analysis of Non-Traded REITs

By: Brian Henderson, Joshua Mallett, and Craig McCann (Jun 2015)

Published in the Journal of Wealth Management, 19(1):83-94, Summer 2016.

We find that returns to 81 non-traded REITs which had listed, been acquired by or merged with a listed REIT or had updated per share values average 6.3% annually compared to 11.6% returns earned over the same period in traded REITs. A significant portion of non-traded REITs' $45 billion underperformance results from high up?front fees that average 13.2%, and largely compensate brokers. The remainder of the shortfall results from conflicts of interest that permeate the organizational structure of non-traded REITs.

Non-traded REITs that list on a major securities exchange almost always "internalize" their management and administrative functions prior to listing. We observe corresponding reductions in expenses, on average equal to 9.0% of revenues, largely attributable to the elimination of payments to affiliated parties. Institutional ownership of non-traded REITs rarely occurs until after both an exchange listing and the severing of management and advisory functions from the sponsor, consistent with our view that non-traded REIT investors suffer from the lack of monitoring and effective mechanisms for shareholder protection.

4 Results