Sean Ruhmann is a partner at investment consulting firm NEPC, LLC and heads the firm’s real estate and real assets research group. Prior to joining NEPC in 2010, Ruhmann was a vice president in the real estate investment banking group at Goldman, Sachs & Co. Ruhmann holds an M.B.A. from the Tuck School of Business at Dartmouth, an M.S. in mechanical engineering from Texas A&M University and a B.S. in engineering from Trinity College.
Do you view REITs as an investing proxy for direct real estate investment?
We would view REITs as a good long-term proxy to core real estate. In the short run, REITs and private core real estate don’t necessarily look the same from a return and volatility standpoint. But core real estate shouldn’t be a shortly held asset.
When you stretch out into a long-term period, REITs and core real estate start to look a lot alike and become much more highly correlated.
What does that mean for institutional investors?
If institutional investors are OK with the short-term volatility and correlations of REITs to their broader equity portfolios, they should consider REITs as a component of their overall core portfolios.
What kinds of benefits do you see REITs bringing to institutional investment portfolios?
Over the long term, we see REITs bringing similar benefits as what you might get from private core real estate. REITs offer an added benefit: The REIT universe is very large, certainly relative to the private core funds.
Through that larger universe, institutional investors can get exposure to different real estate asset classes. In some cases, they also get exposure to higher-quality properties.
Do you have any thoughts as to what the ideal portfolio allocation to REITs should be?
That is a harder question to answer. It comes down to what the rest of your non-real estate portfolio looks like, the risk budget for that portfolio, and things like short-term sensitivity to volatility and correlations of REITs to your other equity asset classes.
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