Listed Equity REITs Have Been a Boost for Pensions

October 14, 2014 ( – Performance data from more than 300 U.S. pension funds show listed equity real estate investment trusts (REITs) have been a top-performing asset class across recent market cycles.

By John Manganaro | October 14, 2014
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The study by CEM Benchmarking Inc., an independent provider of cost and performance analysis for pension funds and other institutional investors, and the National Association of Real Estate Investment Trusts (NAREIT), which represents REIT providers and publicly traded real estate companies with an interest in U.S. markets, suggests concern about volatility and the adequacy of pension funding has focused a great deal of attention on investment performance and fees, leading to enthusiasm about new asset classes and styles of investing.

Alexander Beath, a CEM analyst and author of the study, says the data underscore that investment costs and allocation decisions matter hugely when it comes to long-term net returns. The study looks at the performance of trillions of dollars in pension investments between 1998 and 2011, a time during which fundamental changes occurred in the defined benefit (DB) market.

During this period, Beath explains, many pension funds increased their investments in alternative assets,  including private equity, hedge funds, real estate and other real assets such as commodities and infrastructure. In fact, the pension funds analyzed by CEM showed nearly a 400% increase on average for alternatives allocations.

CEM says this reallocation to alternatives paid off in terms of gross returns and realized returns net of fees charged by investment managers.

“Many pension plans could have improved performance by choosing different allocation strategies and optimizing their management fees,” Beath adds. “Listed equity REITs delivered higher net total returns than any other alternative asset class for the 14-year period we analyzed, driven by high and stable dividend payouts, long-term capital appreciation and a significantly lower fee structure compared with private equity and private real estate funds.”