Private Real Estate, Recordkeeping and DC Plans

In “Gone with the Wind,” Scarlett O’Hara draws solace from the security of land. She made plenty of questionable choices, but a recent panel discussion on recordkeeping less liquid investments suggests that maybe she was on to something, at least in that regard.

At a June 2 session of the 2017 SPARK National Conference held at National Harbor, MD just south of Washington, DC, members of the Defined Contribution Real Estate Council (DCREC) offered their thoughts on industry best practices for record-keeping private real estate investments. Panelists included Scott Brooks, founding partner of Brooks Retirement Consulting; Jeff Snyder, vice president, and senior consultant at Cammack Retirement; and Lori Tillinghast, executive director at UBS Realty.

Panelists said they anticipate private real estate to be embraced as the first non-traditional asset class in defined contribution plans that could improve retirement outcomes. Reasons for that, they said, include:

  • uncorrelated diversification;
  • reducing volatility;
  • stabilizing income returns; and
  • inflation protection.

The DCREC, they said, estimates that more than $25 billion in private real estate assets are under management across more than 100 DC plans.

Panelists said it is a myth that DC plans need 100% daily values and cannot use less liquid private investments. The truth, they said, is that daily valuations are available for a growing number of private investment products. They also said it is a myth that plan sponsors must offer daily liquidity in all investment options. Rather, they said, plan sponsors can manage less liquid plans in multi-asset solutions.

Panelists indicated that such investments are worth the expense. “It’s not just returns vs. expenses,” said Snyder. Brooks agreed, remarking that “It’s not about getting the lowest fees. It’s worth paying an extra fee in order to get better service” and to get to the best retirement goal. “There’s no doubt” that it is more expensive to manage, said Tillinghast, but real estate is “a very stable income stream.”

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