Will direct real estate investments do the trick?
Nuveen is banking on yes, and has added direct real estate investments as part of the allocation in its target date fund series, a first-of-its kind in the industry, the asset management giant said Thursday.
The offering, available in its TIAA-CREF Lifecycle Funds, has three objectives, according John Cunniff, managing director at TIAA Investments and portfolio manager of the TIAA-CREF Lifecycle Fund series—greater diversification, risk reduction and better positioning for investors to meet long term investment goals.
The Lifecycle Funds already employs real estate investment trusts (REIT), which Cunniff notes have some correlation with traditional asset classes like stocks and bonds, and are therefore subject to market volatility. However, he emphasized this is the first time Nuveen or anyone has employed direct real estate, an asset class with low correlation to act as a diversifying factor, in a fund of this type.
Real estate investments for the fund series will be made through TH Real Estate, an affiliate of Nuveen, and will really on the former’s 70-plus years of experience managing real estate investments for institutional investors.
The introduction of direct real estate to the Lifecycle Funds is a “great example of the resources now available that come from leveraging the expertise from multiple firms now under the Nuveen umbrella,” said Erin Donnelly, executive vice president and head of Defined Contribution Investment Only (DCIO) at Nuveen.
Nuveen recently rebranded as the asset management arm of TIAA in a multi-boutique structure, and its distribution team now features a single point of entry to all of its affiliated firms and areas of expertise, including active and indexed target date strategies, equity, fixed income and specialty asset classes like defined real estate investments.
The real estate allocation of the Lifecycle Fund series will typically range between 1 percent and 5 percent of each portfolios’ assets that employ a core investment style focused on institutional quality commercial real estate investments primarily in office, industrial, retail and multifamily residential properties.
Core real estate assets are well-occupied properties with high-quality tenants with long-term leases often located in high barrier-to-entry markets such as New York, Washington, D.C. and San Francisco.
While real estate allocations have long played a role in the performance of defined benefit plan portfolios, the firm claims, they have been less accessible to defined contribution plan investors until now.
“More than a decade after regulations spurred the proliferation of target-date funds as the predominant investment vehicle in defined contribution plans, we’re now seeing plan sponsors and plan advisors take a fresh look at their plans’ investment menus,” Donnelly concluded. “With nearly 100 years of experience managing retirement assets, we’re thrilled to continue that legacy by leveraging the expertise of our specialized investment teams to deliver a target-date fund enhancement that allows plan participants to benefit from the unique investment advantages that direct real estate has to offer.