Note that most institutional investors do not invest in real estate. Only large, sophisticated investors have the necessary resources to invest in the asset class. For example, in the United States, there are nearly 4,000 public pension systems (state and local), according to the U.S. Census Bureau. And, according to The Money Market Directory, there are more than 65,000 pension plans (public and corporate) in the United States. Of that group, roughly 2,000 invest in the real estate asset class.
While smaller investors stick to investing in equities and bonds, larger investors are attracted to the real estate asset class because it provides portfolio diversification — due to its low correlation to other assets — and offers an appealing income and yield opportunity. During the past few decades, these investors have slowly increased their allocations to real estate, and today the average target allocation for U.S. pension funds is approximately 9 percent.