Pension funds invested almost $30 billion in real estate last year, nearly as much as the $33 billion they allocated in total to private equity funds and funds of hedge funds, as they sought to cut risk by switching out of stocks and bonds.
Real estate accounts for 49 percent of retirement plan money invested in alternative assets, with 38 percent in buyout funds and 13 percent in funds of hedge funds, according to a survey carried out by consultants Watson Wyatt LLP and Global Investor Magazine. Deutsche Bank AG, Germany's largest bank, has $57.6 billion invested in property through its fund unit.
"Property endures as a popular alternative asset class," Roger Urwin, global head of investment consulting at Watson Wyatt, said in a statement. "Many property managers have adapted their offerings, including the introduction of indirect vehicles, to make it easier for pension funds to invest in them."
A fund of hedge funds is created by an investment company that invests in hedge funds. Such funds typically require lower minimum investments.
Pension funds are diversifying their investments as they try to eliminate shortfalls that developed during the bear market between 2000 and 2002. In the United Kingdom, real estate is the only asset that has made money for investors every year since 1992.
The biggest buyout fund manager is Hamilton Lane Advisors LLC, of Bala Cynwyd, Pa. It oversees $39.3 billion of assets, according to the survey.
Man Group PLC is the biggest manager of a fund of hedge funds, with the London-based company overseeing $35.5 billion, Watson Wyatt and Global Investor said. The other eight fund managers in the top 10 oversee real estate assets.
Asian pension funds show little interest in property as an alternative to stocks and bonds, preferring to place their money with funds of hedge funds.