DC real estate capital AUM increased 50% in 5 years, but 2020 was significant
Defined Contribution Survey 2021
December 7, 2021
Appetite for real estate among Defined Contribution (DC) investors is increasing, with the median assets under management of an investment manager managing DC real estate capital increasing more than 50% over the past five years.
That’s one of the key findings from the first edition of the DCREC-NAREIM-Ferguson Partners Defined Contribution [DC] Survey, released today.
The DC Survey 2021 builds on six years of reporting by DCREC (the Defined Contribution Real Estate Council) on daily-valued private real estate strategies in the DC market.
In 2021, DCREC partnered with NAREIM and Ferguson Partners to help expand the metrics being tracked to provide a benchmark of DC capital flows and structuring considerations, as well as organizational and staffing best practices among DC real estate investment managers.
NAREIM's investment manager members are eligible to receive a complimentary copy of the report. Email Zoe Hughes for access, email@example.com.
Key highlights include:
DC investors are increasingly sophisticated. DC investors have grown more sophisticated in their knowledge of the real estate asset class and many are looking closer at asset-level and manager performance, in addition to product structure.
Product choice continues to expand. A growing number of real estate managers have launched daily-valued DC investment products over the past several years, and several expect to bring additional offerings to the market in the near to medium term.
2020 was significant. One key trend that was already underway by the start of 2020 was the growth in capital inflows for real estate strategies from DC investors. Between 2016 and 2020, there was a 50% increase in the median firm AUM. However, in 2020, just 16% of responding firms saw an increase in year-over-year AUM given market volatility and rebalancing activity driven by the pandemic
The DC Survey 2021 also tracks, for the first time, investor appetite for real estate as well as portfolio construction strategies and allocation intentions.
Key investor highlights include:
Reasons for investing in real estate. Investors cited diversification, risk-adjusted returns and inflation as the primary reasons for investing in real estate.
Increasing investor sophistication. DC investors are beginning to look beyond the headline benefits of real estate and are increasingly digging into asset-level performance and performance between managers.
The DC Survey 2021 showed that investors are increasingly willing to manage their own liquidity and, as they become more comfortable with the asset class, are evaluating products — and managers — for the value of the direct real estate underlying it, rather than the product structure.
The Survey revealed that a third of DC investors are investing with multiple managers rather than just one.
The key metrics covered in the report include:
Investor survey Investor type; Plan sponsor plan size; DC plan private market exposure; DC plan real estate strategies; Reasons for investing in a DC plan; Portfolio construction strategies; Target allocations; Product offerings to participants; Investment structures and managers; Plan sponsor outsourcing.
Manager demographics: Organization type; Number of FTEs; AUM; Current efforts in DC space; Management of DC capital.
DC capital flows: DC capital commitments in 2020; DC capital inflows and inflows from new investors; Total private real estate DC capital flows
Dedicated DC strategies: Distribution of strategy AUM; Scale and growth of DC real estate strategies; Target allocation and liquidity sleeve; DC investor demographics
Organizational resources for dedicated DC strategies: Employee resources and background; DC capital raising distribution resources
Best practice interviews with Heitman, JPMorgan Asset Management, Manulife, National Real Estate Advisors. Download the full interview here.
DCREC: “DCREC is thrilled to partner with NAREIM and Ferguson to bring these valuable insights to DC investors and investment managers,” said Sara Shean, Co-President of DCREC. “As interest in private investing for DC plans continues to grow, we believe the historical benchmarking data will be helpful to those designing and investing in these solutions to improve participant outcomes.”
NAREIM: “At NAREIM, we have been tracking the growing importance of retail capital, particularly that of defined contribution plans, since 2017 and we are excited to have partnered with DCREC and Ferguson to build on that research with this DC Survey,” said Zoe Hughes, CEO of NAREIM. “As DC capital becomes an increasingly important, and larger, part of the investment management world, so too the need for benchmarking tools increases. This Survey is about helping managers and investors understand how to establish, build and execute on successful strategies for real estate investing. NAREIM is honored to be a part of that work.”
Ferguson Partners: “Defined contribution capital has the potential to reshape the real estate investment management landscape over the coming years,” said Erin Green, Managing Director of Ferguson Partners. “Understanding investor appetite, product structures and capital flows are critical inputs for any manager active in, or evaluating entry into, the space. Ferguson Partners could not be more proud to partner with DCREC and NAREIM on this important initiative.”
The DC Survey 2021 builds on six years of research helping investment managers and DC investors better understand scale and execution of real estate products for DC participants. The 2021 report demonstrates that there is heightened interest from both real estate investment managers who are either actively developing their DC offerings or considering doing so, as well as from DC investors who view real estate as a valuable component of their portfolio construction.
The key objective of the DC Survey 2021 this year and in future iterations, is to benchmark that understanding. This report is the foundation of all respondents working together to share insights and best practices for the benefit of the entire industry.
The full Survey results are available to DCREC and NAREIM members.
For more information on the Survey or access a copy of the report (investment manager members only), please contact Zoe Hughes, NAREIM: firstname.lastname@example.org