$36bn of DC capital in private RE; net flows declined in 2023
Defined Contribution Survey 2024
October 2, 2024
Capital flows from defined contribution investors into private real estate funds fell modestly during 2023, according to the latest edition of the DC Survey out today.
The 2024 Defined Contribution Survey, released in partnership with DCREC, NAREIM, NCREIF and PREA, revealed $3.1bn of DC inflows into private real estate strategies in the 12 months to the end of 2023. However, outflows totaled $3.8bn over the same period.
Despite net capital flows declining by $700m, 64% of 2024 respondents reported net increases in capital flows from DC channels during 2023, while 36% of firms saw net declines.
The 2024 Defined Contribution Survey revealed more than $36bn of DC capital was invested in private real estate strategies by the end of 2023. The Survey was conducted between May and July 2024 and involved 24 firms representing more than $1.5tn of gross AUM.
Amid significant market challenges, from interest rate increases, maturing debt, office occupancy and valuations as well as rising insurance costs, investment managers shared that almost all inflows of DC capital went to dedicated DC vehicles, and that almost all inflows were from existing DC investors.
Fund flows came largely from existing DC plan investors, with just 0.3% of inflows coming from new DC investors in the 12 months to the end of December 2023. Of all the inflows, 98% of capital was targeted towards real estate vehicles dedicated to DC investors versus general institutional real estate vehicles, such as open-ended funds.
Other key highlights included:
The typical real estate fund, dedicated to defined contribution investors, has 85% of its assets in private real estate, with 12% in listed real estate investment trusts (REITs).
The average liquidity cap in the industry is 9.25%, with two-thirds of managers rebalancing quarterly.
Two-thirds (64%) of managers target the DC channel using in-house real estate capital raisers.
For firms with dedicated DC staff, one-third (36%) of their time is spent on marketing, sales and distribution while almost one-quarter is spent, respectively, on portfolio management/product development and client relations.
“We are starting to see renewed interest on the part of DC plans investing in the real estate market,” said Greg Jenkins, co-president of DCREC and head of institutional defined contribution at Invesco. “Sentiment is trending positively as interest rates begin to fall and we move further away from the pandemic.”
Diane Smola, co-president of DCREC and managing director at Principal Real Estate Investors added: “A real estate allocation within a multi-asset portfolio has the potential to provide enhanced diversification and consistent income over time."
To download the 2024 DC Survey, click here.