DC Capital Invested in Private Real Estate Is Growing

Total defined contribution capital invested in private real estate has increased by an estimated 9.04%, according to the 2023 Defined Contribution Survey by the Defined Contribution Real Estate Council, the National Association of Real Estate Investment Managers and Ferguson Partners.

Approximately $59.1 billion of defined contribution capital was invested in private real estate as of the end of 2022, including $17.7 billion in corporate DC investment structures, $15.4 billion in public DC and $26.0 billion in investments open to 403(b) DC plans, the survey finds.

The capital increases show that the DC plans see value in private real estate, Jani Venter, Defined Contribution Real Estate Council co-president and head of defined contribution real estate solutions for J.P. Morgan Asset Management, stated in a press release.

“In particular, they are recognizing the benefits of core private real estate—enhanced diversification, stable income yields, downside mitigation and better inflation mitigation,” Venter stated. “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.”

Defined contribution capital invested in private real estate was $54.2 billion in 2021, council data shows.

The survey found growth in the number of daily valued private real estate products available: In 2023, investors selected from 17 private real estate vehicles available in the market—identical to 2022, although increased from 15, in 2021—compared with four total, in 2005.

Dedicated DC real estate strategies were divided in the survey by DC investor demographics and by investment structure.

In 2023, survey respondents said they sourced 39.6% of their DC real estate fund capital from corporate pension plans, 25.6% from public pensions, 13.9% from outsourced chief investment officer/asset manager channels, 8.5% from Taft-Hartley pension plans and 12.3% from other sources.

The research shows that private real estate DC investors favored custom target-date funds.  

The largest sources for private real estate assets, according to the survey, were:

• Custom target-date funds (48.8%);
• Other sources, comprised by Taft-Hartley pensions, public plans, corporate plans and trustee directed funds—11 total respondents—(18.4);
• Off-the-shelf funds (11.7%);
• Defined benefit plan funds (10.3%);
• White label funds (8.0%); and
• Participant-directed line-up option funds (2.8%).

Outsourced chief investment officer accounts are the largest driver of DC assets to private real estate investments, the survey finds.

• For private equity real estate, 49% of capital originated from the discretionary accounts of outsourced chief investment officer channels;
• Adviser channel sources originated 38.9%; and
• The remaining 12.1% originated from in-house investment management, non-discretionary or limited discretion joint ventures and/or separate managed accounts and balance sheet investments.

“Understanding the source of DC capital is important for managers who are interested in building strong programs,” the survey stated. “External OCIO or discretionary accounts are the source of nearly half of private equity real estate investor holdings. For public equity real estate, advisory mandates form over half of assets under management.”

Thirty real estate investment management firms representing $1.75 trillion of assets under management completed the 2023 survey. Data was collected between April and June 2023 and represent assets as of December 31, 2022.

The Defined Contribution Real Estate Council, the National Association of Real Estate Investment Managers and Ferguson Partners produced the survey.