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The Perilous State of Pensions

Pension fund capital flows have been a mainstay of the commercial real estate industry for more than 30 years—plan sponsors have been the primary targets of real estate managers and more recently private equity investors, looking to advance their assets under management and related fees. By some counts there are more than 300 firms currently competing for institutional capital—many are simultaneously trying to survive the aftershocks of the recent market downslide and some merely stay in business nursing assets with relatively dismal prospects for any near-term recovery.

By Jonathan D. Miller | Updated on March 06, 2012

Pension fund capital flows have been a mainstay of the commercial real estate industry for more than 30 years—plan sponsors have been the primary targets of real estate managers and more recently private equity investors, looking to advance their assets under management and related fees. By some counts there are more than 300 firms currently competing for institutional capital—many are simultaneously trying to survive the aftershocks of the recent market downslide and some merely stay in business nursing assets with relatively dismal prospects for any near-term recovery.  When the shakeout ends in coming years, there may be room for only half as many advisors—ten to 20 major brand players who concentrate assets in large core funds and more opportunistic private equity accounts as well as a host of manager-operators which run money.

The middleman manager shrinkage has much to do with the end of the transaction bizarre and the drying up of debt pools. Like sub-prime home buyers, many of the smaller advisors wouldn’t have been able to acquire assets without cheap leverage and without it they are out of business. The slow pace of recovery also doesn’t make for a compelling return story for pension funds desperately looking for big pops to meet increasing retiree liabilities.

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