Pension Funds and Private Equity Real Estate: History, Performance, Pathologies, Risks

54 Pages Posted: 28 Aug 2020 Last revised: 4 Mar 2021

See all articles by Timothy J. Riddiough

Timothy J. Riddiough

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Date Written: August 27, 2020

Abstract

I study the history and performance of commercial real estate (CRE) in the pension fund portfolio, showing how many plan sponsors fundamentally changed their approach to CRE investment once underfunding gaps began to emerge in the early and middle 2000s. Several new empirical facts are presented, including pension fund share ownership estimates of private equity real estate (PERE) in excess of 50%, reconfirmation of underperformance of Value-add and Opportunity PERE funds, and the apparent existence of an illiquidity price premium paid by pension funds for the “volatility veil” that PERE fund investment provides. Three types of concentration risks are identified, including high geographical ownership concentrations. The risks that pension funds and their investment in PERE funds pose to economic and financial stability have been exacerbated by the negative aftershocks of the COVID-19 pandemic.

Keywords: Pension funds, Real Estate, Private Equity, Financial Stability, Systemic Risk, COVID-19

JEL Classification: B26, D14, D61, D73, E02, E21, E61, G11, G18, G23, G28, G32, G38, G51, H11, H55, H75, L22, N22, N42

Suggested Citation

Riddiough, Timothy J., Pension Funds and Private Equity Real Estate: History, Performance, Pathologies, Risks (August 27, 2020). Available at SSRN: https://ssrn.com/abstract=3682113 or http://dx.doi.org/10.2139/ssrn.3682113

Timothy J. Riddiough (Contact Author)

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States
608-262-3531 (Phone)
608-265-2738 (Fax)

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