Teacher's Retirement Funds Buying Real Estate

[Justin Bilyj]

Wow, this doesn't seem safe imo. Its like piling into ARM's before 2008 but with Retirement funds. Add onto that the under-funding of public pensions, you are just stacking the pile with TNT

So it essentially manages the investments of people who know the least about investing, i.e., muppets. As such, it came as no surprise that TIAA-CREF might serve as an important bag-holding vehicle for bubble assets just before a fall, tempted by juicy 4% yields. As my friend noted: “In other words, teachers and nurses are shattering property records to fund their retirement.”

This is a classic case of groupthink amongst asset managers. Everyone thinks these assets are safe and untouchable, so they are all piling into the same trade.

It appears clear that pension funds are being set up as the ultimate bag holders when the latest Central Bank bubble pops, and in the meantime, they are a perfect source of illegal fee gouging. A win-win for financial oligarchs.

Teachers' Retirement Funds Are Piling Into Manhattan Real Estate At Record High Prices | Zero Hedge

 

[VolAgent]

It feels like deja vu all over again. Didn't the Japanese do this back in the 80s and lose their shirts?

 

[scagnt83]

I find it amazing the waste inside of some DB plans. If you look at corporate pension plans they are for the most part very well funded right now. But public pension plans are mostly underfunded right now. A lot of it has to do with inadequate contribution levels. But a lot also has to do with the insane fees they are paying inside of these plans for what often equates to poor performance.

I have a client that does work for one of the largest pension plans in the country. It is amazing the amount of actual real estate they invest in on a yearly basis. And they are paying pretty big fees to do so. Basically they are attempting to replicate an insurance company. It would be so much cheaper to just offset that liability to an actual insurance company... not to mention so much safer for the participants.

 

[Justin Bilyj]

I find it amazing the waste inside of some DB plans. If you look at corporate pension plans they are for the most part very well funded right now. But public pension plans are mostly underfunded right now. A lot of it has to do with inadequate contribution levels. But a lot also has to do with the insane fees they are paying inside of these plans for what often equates to poor performance.

I have a client that does work for one of the largest pension plans in the country. It is amazing the amount of actual real estate they invest in on a yearly basis. And they are paying pretty big fees to do so. Basically they are attempting to replicate an insurance company. It would be so much cheaper to just offset that liability to an actual insurance company... not to mention so much safer for the participants.

I think the db plans have unrealistic expectations, I often hear that assumed earnings are supposed to be 7%, WTF!?
Chicago expects their plans to grow 8% a year....HOKAY!
http://www.civiccommittee.org/Media/Default/pdf/Chicagos_Underfunded_Pension_Plans_FINAL.pdf

 

[scagnt83]

I think the db plans have unrealistic expectations, I often hear that assumed earnings are supposed to be 7%, WTF!?
Chicago expects their plans to grow 8% a year....HOKAY!
http://www.civiccommittee.org/Media/Default/pdf/Chicagos_Underfunded_Pension_Plans_FINAL.pdf

At one time CALPERS was using an assumed return of 10% if I remember correctly.

Using a high assumed rate is just a convoluted way of justifying lower yearly contributions. The Advisers on the plan just seem to be in the pocket of the Plan's Board on many of the big public plans... its all politics at that level unfortunately. Especially with something like CALPERS, it is its own public/private corporation more or less, but its run by elected/appointed officials.

I feel that there is almost no form of the Fiduciary Standard being implemented in many of the large public plans. How could there be when they could do the same thing at quarter of the cost?

 

[Gulfman]

All kinds of Retirement Funds have been investing in Comm RE for Decades Now.

The Plumbers Union in my Area Funded a Hugh Hotel Development that costs over $50 mill. The project (of course) ended up costing about 10 mill more than expected---but it was completed. I don't know what rate of Return the Union got---but i'm sure it's in the 7% plus range.

I believe these deals take place behind closed doors---insiders who know insiders---Developers----lobbyist, etc.

 

[VolAgent]

All kinds of Retirement Funds have been investing in Comm RE for Decades Now.

The Plumbers Union in my Area Funded a Hugh Hotel Development that costs over $50 mill. The project (of course) ended up costing about 10 mill more than expected---but it was completed. I don't know what rate of Return the Union got---but i'm sure it's in the 7% plus range.

I believe these deals take place behind closed doors---insiders who know insiders---Developers----lobbyist, etc.

Nothing wrong with investing in real estate. There is plenty wrong in buying high and selling low.

Just because it is a retirement fund doesn't mean they are immune to irrational investing. They at least have the advantage of being able to wait out their investment to recover.

 

[YP1]

TIAA doesn't manage DB plans. They mostly manage institutions 403b/401a plans. Their Real Estate account is just one of the investments choices available to the employees. It's actually a pretty good fund- gives them access to direct RE instead of buying REITS.