Large pension funds expect to increase the amount they invest in REITs during the next year by an average of 4.3%, according to a survey Goldman Sachs conducted of the 40 largest holders of real estate.
At the two extremes, one respondent planned to increase its allocation 50%, another planned to decrease it 20%.
Surveyed last fall, respondents were evenly divided about trading in existing property for REIT shares. Around 59.1% of those surveyed use external managers only for their REIT portfolios, while 18.2% manage the portfolios internally, and 22.7% use a combination of internal and external management.
More than 66% use separate accounts; 20% hold REITs in commingled funds and separate accounts; 13.3% hold REITs only in commingled accounts.
Only one or two REIT managers are used by each pension fund, according to the survey. Just 17.6% of the pension funds questioned plan to hire additional REIT managers, while 64.8% said they weren't considering adding more managers. And nearly 54% of respondents said they would use a consultant to interview additional managers.
On average, pension funds said they expected REITs to return around 11.6% and direct real estate, 11.2%
Thomas J. Healey, managing director at Goldman Sachs and head of pension services, said pension funds have cooled on REITs because performance has been so disappointing and there is so little liquidity.
"There seems to be a lot of head-scratching on the part of pension funds about them now," he said.
