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TIAA TDFs Aim for Direct Real Estate

The firm’s target-date mutual fund lineup will now have access to institutional-quality direct real estate investments.

By Javier Simon editors@strategic-i.com | April 20, 2017

Nuveen added access to direct real estate investments to its target-date fund (TDF) series.

The TIAA-CREF Lifecycle Funds will devote about 1% to 5% of asset allocations to real estate investments, which will be made through TH Real Estate. TIAA says these will be institutional-quality U.S. commercial real estate assets primarily tied to office, industrial, retail and multi-family residential properties. These investments will seek to generate returns primarily from rental income, with asset appreciation as a secondary goal.

“The opportunity to include direct real estate as part of our TIAA-CREF Lifecycle Fund series allocation provides us with the ability to further diversify, reduce volatility and potentially improve investment outcomes,” says John Cunniff, managing director at TIAA Investments and portfolio manager of the TIAA-CREF Lifecycle Fund series. “We believe exposure to direct real estate alongside investments in equity and fixed income is central to building a well-diversified, long-term portfolio for investors.”

These assets have played a significant role in the investment menus of defined benefit (DB) plans for decades, but now real estate investments are becoming more visible in the defined contribution (DC) market in the form of real estate investment trusts (REITS) and direct real estate offerings in TDFs.  

A recent study by Nuveen found that incorporating direct real estate investments into target-date funds provided the potential to enhance diversification, reduce volatility, and improve investment outcomes. These assets have also become more popular in the DC space because they tend to further diversify multi-asset funds while reducing risk by exhibiting less correlation to market volatility than stocks and bonds. Nuveen also found that a 5% allocation to direct real estate improved risk-adjusted returns and retirement accumulations in most scenarios.

The findings are available for download by institutional investors and financial advisers in a new whitepaper titled, Target-Date Funds: Improving Diversification with Direct Real Estate.