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Pension allocation to property under discussion

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US – The amount pension funds should allocate to real estate has come under discussion by pundits at the Pensions Real Estate Association’s conference in Boston.

Susan Hudson Wilson of Property & Portfolio Research said she ran numbers based on a major pension fund’s allocations through an optimiser. This showed that a minimum exposure could be 10% and the maximum 50% of the portfolio.

“Real estate is unambiguously part of a reasonable portfolio,” she said. The question was whether pension funds were anywhere near this yet. “If you look across average pension fund allocations the answer is ‘reduncalis’ at 3.5%-4%.”

“But more and more pension funds are coming to this belief,” she said.

Jacques Gordon of LaSalle Investment Management countered that if pension funds in the US got anywhere near the higher amount it would be a “disaster”.

Optimisation was not the way to approach this area. “The historic numbers have a lot of oddities and queerness in them,” he said.

“We are now past the point where we have to be defensive about real estate as an asset class,” he said. “We have earned our way into portfolios, so let’s move on.”

For real estate to be meaningful in a portfolio the exposure needs to be 10%%-15%, said Ken Rosen, head of Rosen Consulting Group. “Our current levels of around four percent is too shaky a number.”

Rosen believed that the move to higher allocations could not happen overnight but was possible over time.

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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