A:

It is estimated that institutional pension funds in the United States typically have about 5% to 10% of their assets allocated to real estate investments, primarily commercial real estate. That estimate may be somewhat low, however, for two reasons. First, some calculations of pension fund investments only include direct investments in real estate; they do not include equity shares of real estate companies' stocks. Second, pension fund managers have indicated an increased desire for real estate investments in the low-interest-rate environment following the 2008 financial crisis. This desire is further fueled by indications that prices in the residential sector and commercial real estate sector have bottomed out and are beginning to rise.

Investments in real estate by pension funds might well be substantially larger if the majority of pension funds were not too small to have sufficient investment capital for direct investment in large commercial real estate projects. Nonetheless, pension fund investments continue to grow, as real estate is increasingly viewed by fund managers as representing a very favorable risk-adjusted return on investment. Additionally, real estate is seen as an inflation hedge. The current low yields available on bonds are another factor driving fund managers toward increased asset allocation to real estate investments.

Pension funds are a very important factor in the overall investment market, as they make up the largest part of institutional investments. As of 2014, they are estimated to account for nearly 40% of professionally managed assets, and their combined holdings add up to over $10 trillion in total investment capital. Pension funds in the United States are governed by the Employee Retirement Income Security Act, or ERISA, of 1974. In the past, pension fund managers have often seen real estate as mainly a high-potential, capital-appreciation investment. That view has recently become augmented with a perspective on real estate as a steady income-producing asset.


RELATED FAQS
  1. What are the most common mutual funds for investing in the real estate sector?

    Obtain information about some of the most popular mutual funds that investors can consider for investing in the real estate ... Read Answer >>
  2. What average annual return is typical for a long term investment in the real estate ...

    Learn what the average annual return on real estate investments has been over the past 20 years and how it compares to the ... Read Answer >>
  3. How do real estate hedge funds work?

    Understand what a hedge fund is and how it differs from a mutual fund. Learn about the ways in which a hedge fund becomes ... Read Answer >>
  4. Why can real estate be a good addition to a traditional stock and bond portfolio?

    Discover why real estate can be a good addition to a traditional stock and bond portfolio. Real estate is affected by economic ... Read Answer >>
  5. What are the differences between investing in real estate and stocks?

    Invest in real estate by purchasing physical property or buildings, or invest in stocks by buying a claim to a company and ... Read Answer >>
  6. What does asset management mean in regards to real estate?

    Find out what role asset managers play in the real estate markets, how real estate portfolios are selected and why entrepreneurial ... Read Answer >>
Related Articles
  1. Investing

    The Risks Of Real Estate Sector Funds

    Discover the risks and rewards of investing in real estate funds, as well as some of the best and worst performers.
  2. Investing

    Add Some Real Estate To Your Portfolio

    From REITs to owning your own home, find out how diversify your portfolio with real estate assets.
  3. Financial Advisor

    How to Invest in Real Estate Without Buying Property

    Investing in real estate can require more capital than most investors have available, but there are options to invest in real estate for less.
  4. Investing

    Can Real Estate Stabilize Your Portfolio?

    History suggests that real estate can provide diversification and a hedge against inflation.
  5. Financial Advisor

    Top 4 Global Real Estate Mutual Funds

    Read about four of the best global real estate mutual funds, which invest in the securities of real estate companies or real estate investment trusts (REITs).
  6. Investing

    Key Reasons To Invest In Real Estate

    There has been a lot of negativity over the real estate sector since 2008. Here are the reasons why you should be investing in it.
  7. Investing

    4 Key Factors That Drive The Real Estate Market

    Whether you are investing directly or indirectly in property, you need to know the factors that affect its value.
  8. Managing Wealth

    Introduction To Investment Real Estate

    Real estate, like other investments, carries specific risks and rewards. Find out what investment real estate is and what it can do for you.
  9. Financial Advisor

    Top 5 Real Estate Mutual Funds (CGMRX, FREDX)

    Discover the top rated mutual funds focused on the real estate sector, and understand which investors are best suited to hold real estate funds.
  10. Investing

    10 Habits Of Highly Effective Real Estate Investors

    The best real estate investors all share these traits and practices.
RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Private Equity Real Estate

    A Definition of "Private Equity Real Estate" and how it applies ...
  3. Commercial Real Estate

    Property that is used solely for business purposes. Examples ...
  4. Investment Real Estate

    Real estate that generates income or is otherwise intended for ...
  5. Pension Fund

    A fund established by an employer to facilitate and organize ...
  6. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center