Public pension funds are among the most important and active investors in the real estate asset class. With this in mind, looking at the median net IRRs received by this investor type over various time horizons is a good indicator of the performance of the asset class overall. The 2014 Preqin Private Equity Performance Monitor examines the returns achieved by public pension funds across all asset classes, and using this data, this blog focuses on the returns earned from real estate investment portfolios.
Over the one year period to 31 December 2013, public pension funds received a median return of 11.2% from the real estate portion of their investment portfolios, below the median return of their total investment portfolio over the same period (14.8%).
Real estate investments held by public pension funds outperformed the total investment portfolio over the three years to 31 December 2013, returning 11.6% over the period compared to 9.3% for the overall portfolio. Over the same period, real estate investments outperformed fixed income and hedge funds by at least 5%, and returned only slightly less than private equity (12.9%).
Over the longer time period of five years, real estate portfolios produced a median return of 3%, compared to 11.9% for the total investment portfolio. The asset class also returned less than fixed income, hedge funds, listed equity and private equity, suggesting the real estate portfolios held by public pension funds suffered the most from the adverse effects of the economic crisis.
Over the ten years ending 31 December 2013, real estate funds have returned 7.2% for public pension funds, just outperforming the total investment portfolio over the same period by 0.3%.