Benefits

DC Sponsors See Value of Real Estate, but Have Concerns

June 11, 2014 (PLANSPONSOR.com) – Real estate has a place in defined contribution (DC) plans, the Defined Contribution Real Estate Council contends, but sponsors have concerns over valuation, liquidity and cost.

By Jill Cornfield editors@plansponsor.com | June 11, 2014
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Diversification was cited as a key benefit of alternative investments in general, but plan sponsors remain somewhat confused about the definition of alternative investments, possibly skewing the pace of adoption, the council found in a survey of plan sponsors and consultants.

The council’s goal is to promote the inclusion of investments in direct commercial real estate and real estate securities in DC plans. Its members include Deutsche Asset & Wealth Management, Goldman Sachs, Prudential Real Estate Investors and TIAA-CREF, among others.

Sponsors of DC retirement plans see continued growth in the adoption of alternative investments in plan offerings. Low correlation was seen as the primary benefit of alternatives. Lower volatility, high risk/adjusted returns and inflation protection were ranked lower in importance, and income was viewed as least important. Operational issues, including valuation and daily liquidity, remain an obstacle for some alternatives.

All survey respondents had real estate in their plans in some form, with plan sponsors and consultants generally considering real estate one of the more straightforward of alternative investments. Still, some plan sponsors and consultants showed reluctance to include real estate as an asset class among their core offerings because of slower adoption rates and perceived liquidity issues, especially with direct real estate.

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