REITs a Cornerstone of UPS Pension Portfolio

Greg Spick, portfolio manager of real assets with the UPS Group Trust, joined REIT.com in October for an interview to discuss his approaching to real estate investing.

Spick helps manage the pension assets of the employees of delivery firm UPS. The pension fund has nearly $30 billion in assets. Real estate and real assets make up roughly $2 billion of the entire portfolio.

Spick was asked for his insights on the research released in October by Toronto-based CEM Benchmarking detailing pension funds’ asset allocations and investment performance over the 14-year period from 1998-2011. Spick called the study, which was sponsored by NAREIT, “timely” in light of the ongoing discussion surrounding pension funds and their real estate investment strategies.

“I believe that whether I’m coming at it from a listed exposure or from a private exposure, we’re all starting in the same place,” he said. “When you take that into account, that’s one thing that the study did a great job of exploring: the similarities and the correlations between public and private real estate when you account for the time lag.”

Spick said his own fund’s investment performance mirrors that of the CEM study. The UPS fund’s exposures to listed real estate have outperformed private strategies by approximately 300 basis points on average in the long term, according to Spick. Spick described the effect of that difference as “quite meaningful,” equating to millions of dollars.

Spick noted that given their modest cost structures, stock exchange-listed equity REITs offer efficient access to commercial real estate investment. During the financial crisis, the fee difference took on even greater importance, Spick said.

“We were investing into a falling market,” Spick said, “so had we committed capital to a private strategy, we were paying a fee on committed capital. A lot of times, when the values were dropping, the fees on committed capital became a very large percentage of the assets that are actually in the ground.”

UPS invests in real estate by mixing mixes its exposures to both public and private real estate. Spick said he generally looks to the listed real estate markets first to build a position.