I received a notice this weekend from my employer advising that a new investment option will be available within my 401(k). Here’s what the pamphlet had to say about the new fund:
The Fund will invest primarily in existing private real estate funds, publicly traded real estate securities, including REIT (Real Estate Investment Trust) securities, and other real estate-related investments. The Fund’s objective is to exceed, over a market cycle, a customized benchmark return, and to achieve a target return of 7%-10% per year, after fees and expenses, with moderate risk. There is no assurance the objectives of the Fund will be met.
The Fund will invest most of its assets in private real estate funds (conservative, enhanced return and higher return strategies) that have not been available to individual investors until now. These porfolios invest directly in commercial real estate, primarily for traditional pension plans. To provide liquidity, the Fund will also be invested in REIT securities, other real estate-related investments and cash…
The notice provides some impressive graphs outlining the impressive returns provided by private real estate compared to bonds and stocks over a variety of time periods. There is also a description of the differences between the fund and a REIT, explaining returns on REITs are closer to stock market returns than real estate returns. This fund’s strength is its investment directly in commercial real estate.
I have no real estate in my portfolio currently. I might consider adding this real estate fund to my 401(k) to further balance my overall investing strategy.
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12:05 pm (reply)
Is there no straight forward REIT index option? The “private real estate” would make me a little nervous. I’m all for REITs as part of a portfolio, my retirement accounts are about 7% REIT index/individual REIT. But why such a weird hybrid choice in your 401k? Makes me suspicious. Plus, you don’t have the level of accountability that you do with the REIT (SEC filings, etc). What’s the expense ratio?
3:39 pm (reply)
No REIT option. My company manages all of the funds available in my 401(k). We have a large department devoted to Private Real Estate Investment. That is probably a big reason for the company taking that path rather than a REIT, in addition to the “better returns” described within the marketing packet.
1:49 am (reply)
6:31 am (reply)