UNITED STATES - ING Clarion Partners is entering the US defined contribution (DC) investor market for the first time, as officials believe there will be significant growth in the DC pensions arena.
"Defined contribution plans are the fastest-growing segment of the retirement market with over $3tr ($2.3tr euros) assets today," said Stephen Furnary, chairman of ING Clarion.
"The projections are that it will double in size by 2015," he continued.
ING Clarion is planning to take a fund-of-funds approach for one of its initial products aimed at defined contribution investors and split the investment strategy into three areas.
Approximately 60-80% of the investments are expected to be in direct private real estate by investing in a mixture of office, industrial, retail and residential properties.
Another 10-25% of the portfolio will be invested in global REITs managed by ING Clarion Real Estate Securities and up to 10% of the fund-of-funds would be held in cash.
ING Clarion has hired Douglas DuMond as a managing director to lead the company in its efforts to enter the DC market. He was previously managing director and head of BlackRock's US DC business.
"We are projecting to have $1bn of total assets under management at ING Clarion over the next two to three years in the defined contribution area. We would like to be able to grow this to the $3bn level in five years," said Du Mond.
There has been little evidence of interest in the DC market so far from real estate managers, largely because DC plans have to value their assets on a daily basis, but DuMond sees this as an advantage.
"We think we can make this work for us in two ways. The first is by investing in the global REITs. On the private side, we will be doing quarterly evaluations. If there is an asset which moves up or down significantly we would let the investors know about this right away," he added.
ING Clarion will invest capital raised through DC plans in at least one existing commingled fund managed by the company.
The real estate manager notes some DC pension plans already have an existing allocation to real estate while others do not.
"We think that those investors that have an allocation to real estate typically hold in the range of 5-10%. Their interest in the asset class is fuelled by diversifications reasons and the low correlation that real estate has to the public markets," concluded DuMond.
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