Appetite for real estate among Defined Contribution (DC) investors is increasing, with the median assets under management of an investment manager managing DC real estate capital increasing more than 50% over the past five years.
That’s one of the key findings from the first edition of the DCREC-NAREIM-Ferguson Partners Defined Contribution Survey, released Tuesday.
DC investors are also increasingly sophisticated and have grown more so in their knowledge of the real estate asset class and many are looking closer at asset-level and manager performance, in addition to product structure.
Additionally, product choice continues to expand. A growing number of real estate managers have launched daily-valued DC investment products over the past several years, and several expect to bring additional offerings to the market in the near to medium term.
“A growing number of real estate managers have launched daily-valued DC investment products”
Last year was significant, and one key trend that was already underway by the start of 2020 was the growth in capital inflows for real estate strategies from DC investors. Between 2016 and 2020, there was a 50% increase in the median firm AUM.
However, in 2020, just 16% of responding firms saw an increase in year-over-year AUM given market volatility and rebalancing activity driven by the pandemic
The survey also tracked investor appetite for real estate as well as portfolio construction strategies and allocation intentions.
Key investor highlights include:
- Reasons for investing in real estate. Investors cited diversification, risk-adjusted returns and inflation as the primary reasons for investing in real estate.
- Increasing investor sophistication. DC investors are beginning to look beyond the headline benefits of real estate and are increasingly digging into asset-level performance and performance between managers. The DC Survey 2021 showed that investors are increasingly willing to manage their own liquidity and, as they become more comfortable with the asset class, are evaluating products — and managers — for the value of the direct real estate underlying it, rather than the product structure. The Survey revealed that a third of DC investors are investing with multiple managers rather than just one.
The DC Survey 2021 builds on six years of reporting by DCREC (the Defined Contribution Real Estate Council) on daily-valued private real estate strategies in the DC market. In 2021, DCREC partnered with NAREIM and Ferguson Partners to help expand the metrics being tracked to provide a benchmark of DC capital flows and structuring considerations, as well as organizational and staffing best practices among DC real estate investment managers.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.