WASHINGTON, DC—Listed equity REITs outperformed all other asset classes over an 18-year period, according to a study charting the performance of 200 public and private pension funds with a total of $3.5 trillion in assets under management. That being the case, the study by research firm CEM Benchmarking also found that pension funds continue to favor hedge funds in their allocations, although only “Other US Fixed Income” had poorer returns during the study period.

Commissioned by Nareit, the CEM study found that listed equity REITs generated average total annual net returns of 11.4% between 1998 and 2015. Although private equity's average gross return was higher at 13.1% per year, expenses whittled the asset class' average net return to 11.1%, 30 basis points lower than that of equity REITs. Conversely, REITs' low fees boosted their net returns, the study found.

More specifically, the CEM study also found that REITs had the highest total return outside of fixed income, with a Sharpe ratio of 0.44. Unlisted real estate had a much lower Sharpe ratio at 0.31, reflecting lower returns and comparable volatility to REITs. At the opposite end of the spectrum from equity REITs were non-US stock and hedge funds, with Sharpe ratios in the low 20s.