Pension fund investment in commercial real estate: a qualitative analysis of decision-making and investment practices in Brazil

Abstract

ABSTRACT Existing research has shown that pension funds have been adopting financialized real estate governance models and investment practices more concerned with the short-term risk–return performance of the portfolio. This study of the property portfolios of Brazil’s largest pension funds shows that financialization is a powerful force but does not fully explain pension fund commercial real estate investment and management practices which are strongly predicated upon three guiding principles: (1) an awareness of the constraints posed by pension liabilities; (2) a focus on asset-specific competences to increase returns; and (3) a prioritization of in-house investment management. These practices are, however, challenged by a recent Monetary Board decision to ban direct property investment by pension funds and place their resources at the disposal of the financial industry.