Private Real Estate Assets in DC Plans Valued at $36.4B

Defined Contribution assets invested in private real estate fund products were worth $36.4 billion in 2023, according to a survey considering the relatively rare DC investment.

The survey, led by the Defined Contribution Real Estate Council, drew on responses from 24 real estate investment management firms; the organization did not have a comparable figure for the year prior due to survey adjustments.

The report also found that 63.6% of the asset managers saw net inflows into the investment for the year, with 36.4% showing outflows. The fund inflows came mostly from existing DC plan investors, according to the report, with new investor flows into dedicated DC private real estate funds falling in 2023 to 0.3% from 9.4% of inflows.

Greg Jenkins, co-president of the Defined Contribution Real Estate Council and head of institutional defined contribution at Invesco, was heartened by the inflows overall in what he saw as a challenging year for private real estate, especially for offices.

“We are starting to see renewed interest on the part of DC plans investing in the real estate market,” Jenkins said. “Sentiment is trending positively as interest rates begin to fall and we move further away from the pandemic.”

The report is produced by real estate industry organizations DCREC, the National Association of Real Estate Investment Managers, the National Council of Real Estate Investment Fiduciaries and the Pension Real Estate Association.

Seeking Real Estate

DCREC and the other survey sponsors advocate for private real estate exposure as beneficial to DC plan participants for diversification and because it has the potential for stronger returns.

Jenkins of Invesco says diversification is a goal of participants and plan sponsors alike, with private markets generally a good opportunity to provide more return options. He notes, however, that the DC market push is not intended to include private assets as stand-alone investments, but as exposure in DC-friendly investment vehicles.

“It’s really about using them in target-date portfolios and managed accounts where these assets can really do good for participants in the long term,” he says.

He says it was not a surprise that there were less new adopters of private market investments in DC accounts, but he believes there is positive interest that may show more comers in 2024.

“There are several managed account providers that are looking at alternatives and specifically private real estate because it has the precedents that some other investments don’t,” he says. “It’s often the first stop on the train that many people are thinking about when they are thinking about private markets.”

In a participant pulse survey released by Invesco in September, the firm found that younger participants expect more customization in their retirement investing, something Jenkins says points to desire for more diversification via solutions such as managed accounts.

The survey showed that 63% of Millennials want their investments to be aligned with their personal goals, as compared to 49% of those in Generation X and 42% of Baby Boomers. The firm surveyed 583 large DC plan participants.

Land Grab

The DCREC report found that, as of 2023, the typical real estate fund dedicated to DC investors held 85% of assets in private real estate, with 12% in listed real estate investment trusts, or REITs.

The investment managers participating in the survey do not all offer DC market products. In total, 45.8% actively manage DC capital; 37.5% are considering developing a product; 12.5% are actively developing an offer; and 4.2% have no intention of pursuing a DC offer.

The survey respondents in the private real estate report represented more than $1.5 trillion in AUM and responded to the survey from May through July 2024.

Total DC plan assets in the U.S., as of the most recent Investment Company Institute data, stand at $11.3 trillion.