Nuveen is introducing direct real estate to its target-date mutual funds, providing members of defined contribution (DC) pension schemes access to investments normally the preserve of larger investors.
Nuveen, the investment management arm of US financial services group TIAA, said its TIAA-CREF Lifecycle Funds would allocate 1-5% to direct real estate through its subsidiary TH Real Estate.
The company said: “While real estate allocations have long played an important role in the performance of defined benefit plan portfolios, they have been less accessible to defined contribution plan investors until now.”
The target-date funds will invest in core, institutional-quality office, industrial, retail and multifamily assets, focusing on “rental income with asset appreciation as a secondary goal”.
Target-date funds provide diversified investments for DC pension savers and become more conservative as retirement age approaches.
Nuveen said its introduction of direct real estate into the asset mix was the “first in its kind” in the target-date fund market.
Erin Donnelly, executive vice president and head of defined contribution investment only at Nuveen, said: “More than a decade after regulations spurred the proliferation of target-date funds as the predominant investment vehicle in defined contribution plans, we’re now seeing plan sponsors and plan advisors take a fresh look at their plans’ investment menus.”
Nuveen said its research showed that incorporating direct real estate would enhance diversification, reduce volatility and improve investment outcomes.
It said direct real estate had “greater potential to reduce risk” than publicly-traded property securities like real estate investment trusts (REITs), which are more closely correlated with the wider stock market.
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