Real Estate Allocation in Pension Fund Portfolios

Executive Summary. This study analyzes the actual role of real estate in pension plan investment portfolios by examining 1991 asset allocations for 159 pension plans. First, a review of recent theoretical research on real estate in a mixed-asset portfolio is presented. Analysis of the data indicates that allocations to equity real estate vary widely by plan, ranging from a 0%-17% of total plan assets, with a standard deviation of 4.22. Examination of the data shows that average allocations do not vary substantially by size and type of fund. For example, corporate allocations to equity real estate average 4.48%, whereas union and government funds, on average, allocate 3.78% and 5.05% respectively. The largest plans in the sample, those with more than $5 billion in assets, allocated only slightly less to equity real estate than did those with less than $1 billion in assets (3.96% compared to 4.02%). For other real estate-related asset classes, mortgages and mortgage securities, allocations exhibited greater variation by size and type of fund.