DC Survey: Investor interview series

With New Mexico PERA and Meketa Investment Group

January 31, 2023

The introduction of core private real estate into a defined contribution (DC) plan offers the benefits of diversification, stable income returns, stronger risk-adjusted returns, and the potential for inflation protection with the benefits of reducing volatility in the portfolio.

But what happens in an extreme market? How do illiquid assets work in reality?

Karyn Lujan of Public Employees Retirement Association of New Mexico and consultant Paul Cowie of Meketa Investment Group spoke with NAREIM and DCREC about how the public pension’s voluntary deferred compensation plan introduced core private real estate into their target date funds and the lessons learned during the Covid-19 pandemic when rebalancing was top of mind.

Their key lessons learned? Understand the legal reviews required, be proactive in rebalancing and embrace the fiduciary oversight you provide participants.

Click here to download the New Mexico/Meketa interview.

Key highlights and quotes included:

• Liquidity sleeve with a REIT exposure, daily redemptions and well-built out daily pricing process are key. Also a hold exposure to core private real estate was the real solution for New Mexico PERA

• Rebalancing doesn't always work if it's quarterly, as 2020 showed. New Mexico's real estate DC fund performed better than the majority of the other investments in the plan that it became overweight its target, prompting the record-keeper to automatically rebalance the underlying fund back to its 10% quarterly target. The issue resolved itself quickly when the market rebounded

• "In hindsight, we realize we need a little more discretion around rebalancing amidst market volatility," said Paul Cowie, Meketa. "I would take a more active approach to rebalancing rather than to rely solely on a rulesbased process."

• New Mexico's DC plan is voluntary and so education and encouraging participation is key. "Our education plan consists of two simple steps: one, start your participation, and two, keep increasing your contributions over time," said Karyn Lujan. "As for the fund lineup, our participants, generally speaking, are not investors. We offer target date funds as our default option to make it easy for non-investors to feel comfortable enrolling. We have licensed outreach reps who are able to educate. We take our responsibility very seriously."

• The glidepath is overweight real estate for the longer-dated funds, such as 12% for the 2060 fund moving down to 8% closer to retirement.

Click here to download the New Mexico/Meketa interview.