CONTRIBUTORS
Indraneel Karlekar, Ph.D
Global Head of Research and Strategy, Clarion Partners
Wendy Wang, CFA
Research Officer
Clarion Partners
PREVIEW
Most retirement plan sponsors and fiduciaries design well thought-out, diversified portfolios for retirement plan participants. However, in comparing U.S. defined benefit (DB) and defined contribution (DC) plans, we notice differences in private asset allocations, in particular, to private real estate, despite both plan types seeking to solve for the same goal: income replacement in retirement. As a percentage of assets under management (AUM) amongst private real estate investment managers, DB and DC plans accounted for a respective 42.8% and 4.7% in 2023.1
Why the difference? And why don’t DC plans offer equivalent private asset exposure? Data suggests that DC plans utilize publicly listed real estate investment trust (REIT) securities rather than private real estate to meet their real estate allocation requirements. Is the lack of exposure to private real estate detracting from participant outcomes and a better portfolio mix?
In this paper, we will show that there is compelling data for DC plan sponsors to consider including private real estate as an investment option in a multi-asset retirement plan.
ENDNOTES
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Source: Defined Contribution Real Estate Council, NAREIM, Ferguson Partners. 2023 Defined Contribution Survey. 2023. Note: The 2023 Survey was completed by 30 real estate investment management firms representing $1.75 trillion of AUM and a cross-section of the industry in terms of size, strategy and geography.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results.
Equity securities are subject to price fluctuation and possible loss of principal.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Risks of investing in real estate investments include but are not limited to fluctuations in lease occupancy rates and operating expenses, variations in rental schedules, which in turn may be adversely affected by local, state, national or international economic conditions. Such conditions may be impacted by the supply and demand for real estate properties, zoning laws, rent control laws, real property taxes, the availability and costs of financing, and environmental laws. Furthermore, investments in real estate are also impacted by market disruptions caused by regional concerns, political upheaval, sovereign debt crises, and uninsured losses (generally from catastrophic events such as earthquakes, floods and wars). Investments in real estate related securities, such as asset-backed or mortgage-backed securities are subject to prepayment and extension risks.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.