- November 1, 2020: Vol. 14, Number 10

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A compelling case: Making the argument for global real estate allocations in DC pension funds

by Doug Rowlands

Alternative asset classes such as infrastructure, private equity, hedge funds and venture capital can undoubtedly offer a range of potential return and diversification benefits previously out of reach of DC members. However, with them come liquidity, operational and governance challenges for trustees to overcome.

Global, institutional-quality real estate can offer attractive returns derived from generally stable income streams, while simultaneously having the potential to lower portfolio volatility. Historically, low correlations to other countries and alternative asset classes make it a useful tool for diversification. Indeed, the addition of a global real estate portfolio can improve the efficient frontier for a typical DC scheme that assumes the traditional 60 percent/40 percent split to global equities and fixed income. The resulting impact is an improved performance profile with lower volatility.

Historically, real estate has delivered strong relative performance

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