The Markets September 28, 2023

Private Real Estate Investment Through DC Plans Continues to Grow

Managers continue to push into the defined contribution space, a bet that plan sponsors and advisers will be attracted to the asset class.

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Investment in private real estate through defined contribution vehicles withstood market volatility and “significant” portfolio rebalancing in 2022 to grow more than 9% compared to 2021, according to annual data released Thursday by the Defined Contribution Real Estate Council.

The growing defined contribution push by real estate investment managers as part of their institutional offerings drove growth in assets to $59.1 billion in 2022 from $54.2 billion in 2021, the latest data available from surveying done by DCREC, real estate investment management association NAREIM and corporate talent management firm Ferguson Partners.

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The survey, conducted from April through June, drew on 30 real estate management respondents with a combined $1.75 trillion in assets under management. The interest in DC retirement savings is growing in relevance in part due to less availability in the shrinking defined benefit plans landscape, according to the survey’s publishers.

“Year-over-year we are seeing an increasing number of real estate investment managers consider and explore defined contribution strategies as part of the products they offer institutional investors,” Zoe Hughes, CEO of NAREIM, said in a statement. “For managers, though, there is a critical journey to be made in understanding the realities of liquidity and investor behavior during different cycles and what it takes to structure and raise capital from DC plans.”

Going Private

Providing retirement plan participants with real estate investment opportunities often used by other institutional investors or in the private market has been a push for DCREC and NAREIM in recent years.

But the trend also extends to investment managers seeking private opportunities, according to a separate report released by Cerulli Associates, Invesco and Investments & Wealth Institute on Wednesday. The survey of financial advisers found that 81% find private market investments as a way to differentiate their practices, and 67% believe private offerings attract high-net-worth clients.

The interest in investment in private areas such as real estate, private equity and private debt, stemmed in part from both equity and fixed-income markets declining in 2022, which spurred a need for greater diversity.

“It’s clear that advisers understand the importance of private markets investments as both a defense and offense tool at a practice level, because they can use the exposures to better define their value proposition and help clients meet their goals,” Daniil Shapiro, director of product development at Cerulli, said in a statement.

The amount of allocation to private market investments continues to be relatively small compared to total portfolios, according to the researchers. About half of advisers report an alternative allocation of 5% or less, with lack of liquidity (56%), client education (44%) and product complexity/due diligence (39%) cited as challenges to adoption.

“Investor demand for private markets investments continues to grow, so financial professionals need to understand and clearly articulate the potential benefits of asset classes, structures, liquidity provisions, and individual products,” John McDonough, head of Americas distribution at Invesco, said in a statement. 

Going Up?

While year-over-year growth in DC allocators using private real estate was relatively low, it withstood a rocky 2022, according to the DCREC.

“For DC allocators who use private real estate, it was a year of two halves, with the first half characterized by net outflows of DC assets from real estate and then a recovery in the second half,” Greg Jenkins, co-president of the DCREC, said in a statement. “Much of the outflow was driven by the relative outperformance of real estate and a need to rebalance target-date funds. Second half growth was largely the result of an increase in commitments to the asset class from existing shareholders.”

The DCREC’s research showed that adding private real estate to a DC plan portfolio—even as little as a 10% allocation—enhances the risk-return profile and improves the probability of achieving desired retirement outcomes.

“In today’s challenging investing environment, market participants are rethinking portfolio construction,” Jani Venter, DCREC’s co-president, said in a statement. “We expect this trend to continue as plan sponsors strive to provide their DC participants with what they deserve: well-diversified, professionally managed portfolios that drive stronger retirement outcomes.”

Real estate investment managers are also set to bring “multiple new investment products” to market in the coming years, according to the survey.

Deals & People September 28, 2023

Creative Planning CIO Jim Williams Dies at 46

The CIO was ‘admired by clients and colleagues’ and a ‘devoted husband and father.’

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Jim Williams

Creative Planning CIO Jim Williams passed away over the weekend at the age of 46. The CIO had been with Creative Planning for 18 years, based in Leawood, Kansas.

As CIO, Williams contributed to the firm’s investment strategy, the way it managed and traded portfolios, and the investment products and solutions offered to clients, according to the advisory. His work was “instrumental in the success and growth” of the firm,” says Molly Rothove, Creative Planning’s vice president and a wealth manager.

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“[Jim] was admired by clients and colleagues for his vast knowledge of markets, investments and the economy and his calm and reassuring demeanor in turbulent times,” Rothove says. “He had a great sense of humor, a deep belief in Creative Planning’s client-centric mission and a vested interest in helping others within the organization succeed.”

The cause of Williams’ death has not been released.

Jamie Battmer, who had been CIO of the retirement services division, will be taking over the role, Rothove says, noting that Battmer had worked closely with Williams. Battmer joined from Creative Planning’s 2021 Lockton acquisition.

Rothove says condolences for Williams have been coming in from colleagues within the organization, as well as clients.

“Jim had a wonderful sense of humor, and he always made sure that people were taken care of and that they were getting everything that they needed,” Rothove says. “He was truly vested in so many people’s individual success.”

Williams, she says, was particularly known for giving time to new employees or those from newly acquired companies to make sure they felt at home and ready to succeed at the firm.

He was also a devoted husband and father, Rothove notes, known for attending his kids’ sporting events and often being “the driver” for his kids and their friends for after-school activities.

Colleagues will be invited to a celebration of Williams’ life at an upcoming date to be determined.

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