Determinants of Real Estate Asset Allocations in Private and Public Pension Plans
Posted: 21 Nov 1999
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 paper is to examine various asset/liability matching hypotheses regarding pension plan asset allocations. Models are specified for both corporate and government defined-benefit plans which relate the characteristics of each plan to the percent 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 paper, 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, in order to minimize the noise level in their pension liabilities.
JEL Classification: G12, H55
Suggested Citation: Suggested Citation