The CIO of a large state employees’ retirement fund compares the ideal asset-allocation strategy to that of a rock band. When he joined the pension plan five years ago, he explains, every asset class was trying to be lead guitar, but what he needed from the real estate allocation was a bass player: “Why not reposition real estate to what it is uniquely capable of doing — which is provide a high current coupon which is indexed to inflation.”

In a multi-asset portfolio, each asset-class allocation provides a different balance of risks and returns, with diversification allowing for lower correlations. And real estate, especially core real estate, can provide attractive risk-adjusted cash flows.

Real estate has a number of benefits for pension plans, says Ben Maslan, a principal with RCLCO. He explains real estate “increases the efficiency of the fund in a risk-adjusted manner. It increases returns while reducing risk, due to the less-correlative nature of the as