It almost goes without saying; in today’s volatile market environment, 401(k) diversification is key. For those looking to add real estate to the 401(k) investment menu, the Defined Contribution Real Estate Council (DCREC) is here to help.
The organization is “dedicated to advocating for the inclusion of real estate as an essential asset class in DC plan design and implementation,” and has just released a “checklist” for defined contribution (DC) plan sponsors and advisors considering the addition of private real estate as an investment option in DC plans.
The checklist is an evaluation tool created to help plan sponsors and their partners in evaluating private real estate options that could be incorporated into their plan’s overall investment structure.
The checklist incorporates a wide range of recommended questions on topics such as daily valuation, liquidity, investment strategy, product structure and investor eligibility, as well as the operational considerations involved in implementing private real estate strategies on existing record-keeping platforms.
“Plan sponsors and their consultants continue to seek diversified portfolio options for their participants,” Jackie Hawkey, who co-chairs DCREC’s Best Practices Committee, said in a statement. “Interest is growing in allocating to private real estate for uncorrelated diversification, often within customized target date funds or as part of a multi-asset class portfolio.”
“The purpose of this checklist is to give market participants a standard set of questions to ask product providers when considering adding the asset class,” she added. “This will make it easier to assess and compare offerings to determine the best fit for a particular plan.”
A recent survey conducted by DCREC found that approximately $18 billion in daily value real estate is already held within DC plans, with eight managers offering an existing product. Four others anticipate adding a DC-friendly real estate option in the near future.
“Incorporating real estate into a portfolio can improve outcomes and ultimately benefit DC participants,” said Michael O’Connor, co-chair of DCREC’s Best Practices Committee. “Our goal is to make the process of including it as straight-forward as possible for plan sponsors.”