Interesting take on pension funds and their investment role in commercial real estate
The Scott Walker victory rightly has been billed as a blow to labor unions and public employees. But it also signals what will be a significant paring back of public pension funds. More states and municipalities will be moving to end their generous and unsustainable retirement packages, taking the route of corporations and turning defined benefit plans into 401Ks or some equivalent, which will reduce an increasingly impossible taxpayer burden.
The public employee pension fund plan sponsor won’t disappear entirely for quite a while, but the system that pushes tens of billions of dollars into commercial real estate investment each year will enter into a period of stepped up decline and eventual eclipse. And that means less institutional investment coming into the property sector from a major and relied upon capital source. The 401K model and its liquidity requirements have never proved particularly conducive to investing directly into lumpy equity real estate, and cannot be counted on to provide substitute flows. For investment managers who rely on heavy doses of public fund allocations, their business model will require an overhaul in the years ahead. Let’s face it--the whole pension industry as we know it is running out of time.
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