A Conversation with Industry leaders

Jani Venter and Greg Jenkins are co-presidents of the Defined Contribution Real Estate Council (DCREC). Venter is Executive Director at JP Morgan Asset Management, serving her second year as co-president. Jenkins is a Managing Director with Invesco. This is his first year as co-president.

Sara Shean
Jani Venter, JP Morgan
Greg Jenkins, Invesco

What Is The Current State Of The Defined Contribution Market For Daily Valued Real Estate Products?

We continue to see increased interest and growth in the use of daily valued real estate in defined contribution plans. That’s reflected in the increase in the number of products available, the assets held in these products, and in the expansion of our membership over the last several years.

There are now at least 17 daily valued real estate products in the market, with more coming in the next 12-24 months. That’s up from nine in 2015. According to the 2022 Defined Contribution Survey DCREC published with NAREIM and Fergusons, there is approximately $79.4 billion of DC capital currently invested in private real estate. Our membership has also experienced a strong growth trajectory. When we established the DCREC in 2012 we had nine members – we have nearly 40 members now. Collectively, they manage over $1 trillion in real estate assets. 

There Has Been Significant Growth In Indexed Solutions For DC Plans. How Does That Impact The Use Of Direct Real Estate?

Both active and passive (indexed) multi-asset solutions have a role to play in solving retirement outcomes. Passive/indexed solutions include exposure to traditional asset classes that can be effectively replicated through passive indices. As a result, these solutions are generally low-cost but offer limited exposure to the diversifying benefits of Core private real estate. As a result, plan sponsors have been increasingly drawn to blended approaches, wherein active management is utilized for asset classes with high diversification potentials such as private real estate or where passive implementation is inefficient/ costly, and passive management is used for asset classes perceived to be more efficient. These blended solutions package the characteristics of both passive and active solutions in a more fee-efficient wrapper while offering exposure to the diversifying private market benefits offered by private real estate.  

Private real estate benefits are particularly relevant in the current macro environment to help mitigate the risks to participants' retirement outcomes. These benefits include – enhanced diversification due to a low correlation with traditional asset classes, strong stable income return that supports a less volatile total return profile, downside protection, stronger risk-adjusted returns, and the potential for inflation protection without increasing overall volatility.   

What Will Drive Future Adoption Of This Asset Class By Plan Sponsors?

There are a number of powerful factors driving the adoption of real estate. Possibly the most significant is the growing use of target date funds (TDFs) in DC plans. They represent about 33% of the DC market today, and 50-70% of all new flows. Multi-asset structures like TDFs are the ideal way to implement diversifiers like real estate within a DC plan.

A second factor is the growing use of outsourced chief investment officers (OCIOs) and the development of more custom solutions for the DC market. Many of these outsourced solutions incorporate diversifying asset classes that are regularly used in from the defined benefit world. We are also seeing more interest from the consultant community, and more mandates that include a real estate option.

Finally, the recently passed Secure Act should also be a long-term positive for the asset class. When smaller plans pool their assets and bring in more professional management it becomes more likely that they will include real estate as an investment option. All this suggests that the growth we’ve seen over the past few years is likely to continue, and even accelerate. 

What Have Been Some Of The Biggest Achievements Of The DCREC To Date?

There have been many, but maybe the most fundamental is the establishment of a widely accepted set of industry best practices. This provides a roadmap for anyone who wants to include real estate as an option in a DC plan. Within best practices, questions about liquidity and daily valuation frequently come up, particularly for private real estate. We’ve provided a series of recommendations for addressing both these questions that has been well received by the community and has helped remove them as an issue for most plans sponsors and consultants.

What Are Your Biggest Challenges?

Continuing to provide educational resources for the plan sponsor and consulting communities on the important role real estate can play in a DC plan. Indexing will continue to grow, but it doesn’t solve every issue for every plan. Blended solutions offer characteristics that include lower cost and the benefits of private real estate and active management. Defined Benefit plans have included private real estate since the 70’s and this access was not transferred to DC plans. Private real estate benefits are crucial to retirement outcomes and it is crucial that DC participants have access to these benefits in post COVID environment. We need to continue to work to get that message out.

Implementing Real Estate in Defined Contribution Plans: Fulfilling a Critical Role (June 25, 2024) 

The Georgetown University CRI, in collaboration with the Defined Contribution Real Estate Council (DCREC), is pleased to offer a one-day invitation-only course focused on considerations for the inclusion of private real estate in defined contribution (DC) plans. The course will provide essential context for plan sponsors to look beyond traditional asset classes to strengthen participant outcomes.
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