Determinants of Real Estate Asset Allocations in Private and Public Pension Plans

Determinants of Real Estate Asset Allocations in Private and Public Pension Plans Numerous studies have examined the factors associated with allocation of corporate and government pension-plan assets. Yet to date there has been no attempt to identify the sponsor-related conditions that affect the percentage of U.S. private and public pension-fund assets invested in real estate. The purpose of this article is to examine various asset-and liability-matching hypotheses regarding pension-plan asset allocations. Models are specified for both corporate and government defined-benefit plans that relate the characteristics of each plan to the percentage allocated to real estate investments. Our results confirm the existence of a significant size effect for both corporate and government pension plans, although we find mean levels of real estate allocation to be much lower than those suggested in previous real estate allocation studies. The article, however, contains some anomalous findings. In particular, our findings suggest that pension-plan sponsors do not hedge their real estate risk. We also find that pension-plan sponsors do not invest in real estate, as theory might suggest, to minimize the noise level in their pension liabilities. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Determinants of Real Estate Asset Allocations in Private and Public Pension Plans

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1007828426335
Publisher site
See Article on Publisher Site

Abstract

Numerous studies have examined the factors associated with allocation of corporate and government pension-plan assets. Yet to date there has been no attempt to identify the sponsor-related conditions that affect the percentage of U.S. private and public pension-fund assets invested in real estate. The purpose of this article is to examine various asset-and liability-matching hypotheses regarding pension-plan asset allocations. Models are specified for both corporate and government defined-benefit plans that relate the characteristics of each plan to the percentage allocated to real estate investments. Our results confirm the existence of a significant size effect for both corporate and government pension plans, although we find mean levels of real estate allocation to be much lower than those suggested in previous real estate allocation studies. The article, however, contains some anomalous findings. In particular, our findings suggest that pension-plan sponsors do not hedge their real estate risk. We also find that pension-plan sponsors do not invest in real estate, as theory might suggest, to minimize the noise level in their pension liabilities.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Sep 30, 2004

References

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