When presenting investors with the concept of investing in real estate within their defined contribution (DC) plans, some may argue that real estate—in the form of the family home—already comprises a significant proportion of their total wealth (and debt!). With that in mind, they may be wondering why they would consider allocating more of their assets to real estate.
This research, authored by Michael E. Drew and Adam N. Walk, addresses the question of whether traditional commercial real estate exposures—public or private—are substantially the same as residential real estate.
Learn more and view the white paper HERE
(NEW YORK), Thursday, August 10, 2017 – The Defined Contribution Real Estate Council (DCREC), a leading advocacy group promoting the inclusion of direct commercial real estate and real estate securities as a way to improve define contribution (DC) retirement plan outcomes, has published "10 Key Principles for Product Structure and Investor Eligibility", it was announced today. The new white paper is designed as a “best practices” guide for DC plan sponsors who want to add direct real estate to their DC plans.
“These key principles are intended as a product structure road map for plan sponsors who want to add direct real estate to their offerings. The direct real estate products available for DC plans seek to offer exposure to direct real estate through structures that are compatible with the needs of the DC market and record keeping systems, offer investor regulatory protections, transparency, and cost efficiency,” said Lennine Occhino, who co-chairs the Best Practices committee at DCREC. “This represents another step forward in the process of institutionalizing the inclusion of real estate as an asset class in DC plans.”
The recommended best practices paper covers a range of subjects, including:
Research sponsored by the DCREC has shown that adding an allocation to real estate can have a positive impact on retirement outcomes. At the same time, the number of plan sponsors offering direct real estate – and the number of investment products available to plan sponsors – continues to grow.
“We continue to see increased investment and growing interest in adding direct real estate to DC plans, often with the goal of bringing real estate’s diversification and income benefits to target date funds and other multi-asset retirement portfolios,” added Michael O’Connor, co-chair of DCREC’s Best Practices Committee. “The preparation of this latest white paper fits with our DCREC organizational goals of developing best practices for the inclusion of real estate as an asset class in retirement plans and improving participant outcomes. We welcome industry feedback on this piece and other collaborative white papers that we have made available on our DCREC website.”
About the Defined Contribution Real Estate Council (DCREC)
The Defined Contribution Real Estate Council was formed in 2012 to promote the inclusion of investments in direct commercial real estate and real estate securities, including REITs, within defined contribution plans. Its goal is to improve participant outcomes by furthering education about, advocacy for, and best practices of such investments.
Members include many of the leading providers of real estate investment products to the defined contribution marketplace. Total membership has grown from 10 to 27 firms since its launch.
More information can found be at www.dcrec.org.
Jennifer Perkins was recently interviewed by Jeffrey Snyder for AssetTV on Staying Ahead of the Curve – The Use of Direct Real Estate and Less Liquid Investments in Defined Contribution Plans.
In the United States alone, real estate makes up about 13% of the investable universe, which converts to approximately $7 trillion. In her interview, Jennifer shares the mission, vision, values and goals of DCREC and clarifies some of the key differences between direct real estate and REITs. She advocates that real estate should be an important part of a multi-asset class portfolio and that there are many different reasons on a strategic level on why you should include real estate as a part of defined contribution plans.
Learn more and view the video HERE
(New York), Friday, June 9, 2017 - DCREC hosted a webinar on May 18 on the topic of Overcoming the Challenges of Less Liquid Assets in DC plans.
DCREC members Laurie Tillinghast (UBS), Scott Brooks (Brooks Retirement Consulting), John Payne (Heitman) led the discussion on some of the terminology, operations and implementation issues involved in recordkeeping these assets.
As a follow-up to the webinar, DCREC sponsored the SPARK Institute's National Conference and held an in-person session on the topic on June 2nd at the Gaylord National Resort & Conference Center in Oxon Hill, MD. DCREC members Jeffrey Snyder (Cammack Retirement) and Jennifer Perkins (Principal Real Estate Investors) joined the panel.
Click HERE to listen to the webinar playback.
Using private real estate as a model, we will set the stage for successfully operationalizing less liquid asset classes in DC funds.
Our experts will share knowledge and open the discussion to answer your questions.
Recordkeeper discussion topics include:
better navigate the critical “Sequence of Returns” issue
Holding public real estate early in the accumulation phase, and private real estate late can improve overall outcomes
NEW YORK, (December 1, 2016) – A new study by the Defined Contribution Real Estate Council (DCREC) examining the impact of a mix of public and private real estate in defined contribution lifecycle funds found that the addition of the asset class helped reduce volatility, mitigate “sequencing risk”, and improve overall outcomes, it was announced today.
“Sequencing risk looms large for plan participants in the late accumulation and early retirement phases of the investment lifecycle, generally between ages 55 and 75, as a result of the portfolio size effect (i.e. bigger portfolios equal bigger absolute gains and losses). Our research shows that an allocation to a mix of public and private real estate can make it easier to successfully navigate this challenge primarily by reducing volatility through the accumulation phase, ultimately leading to better retirement outcomes,” said Brian Velky, DCREC Research & Content co-chair.
The paper (Allocating to Real Estate Assets Across the Lifecycle: a Dynamic Approach), looked at three approaches to the challenge of asset allocation in DC plans through the lifecycle, considering the role of real estate across:
It further confirmed the results from an earlier DCREC study that found that adding as little as 10 percent public and private real estate exposure can enhance the risk-return profile of a DC plan portfolio throughout the retirement lifecycle, improving the probability of successfully achieving desired retirement outcomes.
In the most recent study, the 10 percent allocation was held steady across various portfolio strategies, while the public/private weighting was adjusted. For most of the portfolios examined, adding real estate had a neutral to positive impact on performance, but increased the likelihood of success, defined by the authors as the ability to replace 70 percent of a plan member’s pre-retirement real income for life. This was due primarily to the reduction of volatility throughout the lifecycle, which in turn contributed to reduced sequencing risk.
In addition, the study found that managing the blend of public and private real estate over time might also have a positive impact on both terminal wealth and expected shortfall. In this instance, the maximum benefit is likely to be achieved by overweighting exposure to public real estate early in the accumulation cycle as a source of diversified growth, and then moving towards greater exposure to private real estate late in the cycle for downside protection.
Lack of pooling transfers risk
The study notes that, in contrast to defined benefit (DB) plans, a key feature of DC plans is that sequence risk is transferred to plan participants, primarily by the lack of pooling of assets. The authors point out that in a DB plan, the sponsor is responsible for setting aside sufficient resources to meet the needs of plan participants in retirement. Participants don’t have to concern themselves with sequencing risk, which is spread over the pool of participants over all stages of the retirement lifecycle. In a DC plan the sequence of returns can have a major impact, with low or negative returns late in the accumulation phase making it more difficult for the plan participant to meet his or her goals.
“The sequencing of returns means that the behavior of participants is a key variable of the success or failure of a DC plan participant across the lifecycle,” said Cristina Hazday, DCREC research & content co-chair, who noted that timing strategies have generally delivered poor results for investors. “As such, we see a clear benefit to using real estate to deliver median outcomes that are similar to those of portfolios without exposure to the asset class, but with less volatility over time.”
Members include 23 of the leading real estate investment firms, collectively managing more than $900 billion in total real estate assets.
Daily valuation seen as a vital to further establishing real estate as a fundamental part of defined contribution plans
NEW YORK, (October 17, 2016) – As part of its ongoing mission to advocate for the inclusion of real estate as an essential asset class within defined contribution (DC) plans, the Defined Contribution Real Estate Council (DCREC) announced the publication of 10 Key Principles Recommended for Daily Valuation of Private Real Estate Investments.
“Our 10 Key Principles is designed to act as a guide for establishing a transparent and objective process for pricing real estate assets on a day-to-day basis,” said Michael O’Connor at DCREC. “We believe that the ability to provide daily valuation of private real estate assets held in a portfolio is one of the keys to expanding the use of real estate in DC plans. Valuation is linked to liquidity, and that’s an important concern of plan sponsors and participants.”
This publication offers guidance on topics including:
“Multiple DC plan sponsors in the market today have added private real estate to their plans and have a successful daily valuation process in place,” O’Connor said. “Our publication identifies best practices and makes recommendations to those firms considering offering or evaluating this asset class.”
The DCREC notes that its research has shown that incorporating real estate into a DC plan can improve outcomes for plan participants. A survey conducted in 2015 by DCREC found approximately $18 billion in daily value real estate is already held within DC plans, with eight managers offering an existing product. Four others anticipated adding a DC-friendly real estate option in the near future.
New site features added content and more links to industry resources
NEW YORK, (September 19, 2016) – The Defined Contribution Real Estate Council (DCREC) today announced the launch of its new website designed to assist defined contribution (DC) plan sponsors, advisors and service providers seeking to learn more about the implementation of private and public real estate—including REITs—as an investment option within DC plans.
The new site includes expanded content, research and links to industry resources. It provides access to DCREC’s proprietary industry research, links to its Podcast Series, information on best practice recommendations and a “checklist” for implementing real estate as part of a DC plan.
“Education is a key component of the DCREC mission,” said Alan Brown, DCREC’s co-chair of marketing and public relations. “To that end, the new site is designed to provide an easy-to-access resource for the latest and most comprehensive information on the use of real estate in DC plans.”
“We are pleased to offer this valuable resource to our members and the entire DC marketplace,” Brown added.
Members include 26 of the leading real estate investment firms and service providers, collectively managing more than $900 billion in total real estate assets.
More information can found be at www.dcrec.org
DCREC also releases 10 key principles recommended for daily valuation of private real estate investments
NEW YORK, (July 5, 2016) –The first-ever "checklist" for defined contribution (DC) plan sponsors and consultants considering the addition of private real estate as an investment option in DC plans was announced today by the Defined Contribution Real Estate Council (DCREC)—a membership organization dedicated to advocating for the inclusion of real estate as an essential asset class in DC plan design and implementation.
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,” says Jackie Hawkey, who co-chairs DCREC’s Best Practices Committee. “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 adds. “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,” says 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.”
DCREC Also Publishes Recommended Guide for Private Real Estate Valuations
Additionally, DCREC released Ten Key Principles Recommended for Daily Valuation of Private Real Estate Investments. This guide to understanding best practices in valuation covers topics such as incorporating third-party appraisals, establishing an objective daily valuation process, recognizing the impact of material events, and using currently accepted methods for daily valuation.
“Daily valuation and liquidity are seen as two of the biggest areas of focus for DC sponsors who want to add private real estate as an investment option in their plans,” Hawkey said. “Together, our checklist and guide provide an excellent starting point for anyone hoping to learn more about how they can incorporate this important asset class into a DC platform.”
Members include 26 of the leading real estate investment firms, collectively managing more than $900 billion in total real estate assets.
DCREC SURVEY OF REAL ESTATE INVESTMENT MANAGERS FINDS $18 BILLION AND ACCELERATING GROWTH IN DAILY VALUED PRIVATE REAL ESTATE HELD IN DEFINED CONTRIBUTION PLANS
Eight managers have DC-friendly products in the market, four others launching private real estate options in the near future NEW YORK, (March 22, 2016) – In a survey of 14 investment managers that collectively have more than $2.5 trillion in assets under management, the Defined Contribution Real Estate Council (DCREC) found growing interest in offering private, commercial real estate investment strategies to defined contribution (DC) plan sponsors, with eight managers having at least one product in the market, and four others anticipating launching such private real estate strategies in the near future.
Daily valued private real estate funds managed by the eight responding firms have now grown to $32 billion, with more than$18 billion attributable to defined contribution. Of the $18 billion, approximately 11 percent was allocated to public REITs, and 4.6 percent was allocated to other liquid assets, the survey found. “Typically, these strategies allocate 75-85% to private real estate and 15- 25% to real estate securities and cash to provide the requisite operational liquidity to DC Plans,” said John Payne, DCREC Co-President.
The DCREC survey was completed in the second quarter of 2015. The Council anticipates using this initial survey as a baseline and will conduct the survey on an annual basis going forward.
“The goal of the survey is to give plan sponsors, consultants, and target date fund glide path managers access to information on the depth and breadth of available, DC-friendly investment strategies offering access to private, commercial real estate,” Payne said. “Defined Benefit plans have long capitalized on the diversification benefits of private real estate allocations, and with this survey, we can better understand the magnitude of interest in the DC system and measure the pace of growth going forward.”
“Based on the survey data, DC plan sponsors and consultants can now have confidence that this market has credible scale backed by multiple, competitive offerings that have been successfully implemented,” Payne added. “DC plan fiduciaries considering adding real estate as a diversifying asset class within the rapidly growing segment of professionally managed DC solutions can do so knowing that the market will support them.”
Survey results are available on the DCREC website under research: www.dcrec.org/research
About the Defined Contribution Real Estate Council (DCREC) The Defined Contribution Real Estate Council was formed in 2012 to promote the inclusion of investments in direct commercial real estate and real estate securities, including REITs, within defined contribution plans. Its goal is to improve participant outcomes by furthering education about, advocacy for, and best practices of such investments.
Members include many of the leading providers of real estate investment products to the defined contribution marketplace. Total membership has grown from 10 to 26 firms since its launch.
More information can found be at www.dcrec.org
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