Purpose: This paper compares the benefits of direct international real estate investments in a mixed asset portfolio from the perspective of a passive investor with high and low bond allocation. Design/methodology/approach: Due to high data availability and its professionalism, the Norwegian sovereign wealth fund was used as a representative example. Real estate indices from 8 countries were used for the portfolio analysis. The data were desmoothed according to Geltners’s 1993 approach. Findings: The optimal real estate ratio in the present case is around 20–55%. However, this is strongly dependent on the bond ratio of the multi-asset portfolio. Portfolios with a high equity ratio benefit more from the additional direct real estate investments than portfolios with high bond ratios. Research limitations/implications: A rebalancing of individual stocks and bonds was not analysed. Only indexes from MSCI (Morgan Stanley Capital International) were available. Practical implications: Concludes that the weighting of stocks and bonds has a strong influence on the optimal real estate ratio and therefore structural changes that affect this weighting. Originality/value: The originality of the paper lies in the analysis with different weights of stocks and bonds, the consideration of 8 real estate markets and the observation period. The results of the work highlight areas of interest for further research.

Purpose: Using data spanning 145 years for Sweden, the authors investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth. Design/methodology/approach: The authors assess the risk-adjusted excess return that results from adding multi-family properties to a mixed-asset portfolio that aims to track wage growth. The authors also analyse the macroeconomic determinants of asset returns. Finally, the authors test whether a causal relationship exists between the growth rate of real wages and that of real net operating income. Findings: The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. The authors show that the net operating income acts as the transmission channel between wages and property returns. Practical implications: The paper assesses whether the growing interest of pension funds for multi-family properties is warranted in the context of a portfolio that aims to track wage growth. Originality/value: Using long term data makes it possible to use a rolling windows approach and hence to consider multiple outcomes for an allocation strategy over a typical investment horizon. This permits to assess the dispersion of performance across several periods rather than just one as is commonly done in the literature. The results show that the conclusions that would be drawn from looking at the past two or three decades of data differ substantially from those for earlier time periods.

Purpose: The asset allocation decision for a pension portfolio needs to consider several, sometimes conflicting, aspects. Most pension managers use models and processes that are developed for the traditional asset classes for analyzing this problem. The purpose of this paper is to investigate how real estate is included in this process, for what purpose and how the real estate portfolio is constructed. Design/methodology/approach: Seven individuals responsible for the asset allocation process were interviewed, and their responses were analyzed with regards to organizational options and their real estate strategy. Findings: It was found that real estate is held for three different purposes, risk diversification, inflation hedging/liability matching and return enhancement and that the allocation has increased over time. The allocation strategy has evolved at least in part in conjuncture with the organizational structure set in place to overcome real estate market frictions. Research limitations/implications: The interviews were geographically limited to pension funds domiciled in Sweden and Finland. Practical implications: It is concluded that the organizational capabilities of the pension fund of handling real estate is an important consideration for the ensuing real estate portfolio. Originality/value: The originality of this paper lies in that it is based on interviews with individuals who are responsible for the asset allocation decision at large pension funds. The findings of the paper identify areas of interest for future research.

Purpose – The purpose of this paper is to explore how tenant end demand dependence and investment market segmentation, as estimated through sector type, impacts real estate portfolio strategy in the context of the multi-asset portfolio. Design/methodology/approach – The analysis is performed for six investor domeciles, for domestic and international investments over several cycles. The analysis is performed in a mean variance framework. Findings – The findings are consistent with the hypothesis that an investor benefits from investing in real estate assets where end demand is dependent on local factors rather than global factors. Practical implications – The efficiency of the overall multi-asset portfolio benefits from a deeper understanding of how the real estate portfolio is constructed. Locally dependent real estate, i.e. real estate that is dependent on local economic factors, tends to better support the overall portfolio than do real estate that is dependent upon global factors. Originality/value – The paper contributes to the broader knowledge through extending earlier studies using similar methodology by extending the data series to cover the impact of the latest global financial crises, as well through extending the knowledge how the real estate portfolio should be constructed to better support the overall objectives of the multi-asset portfolio.