Pension funds’ real estate gamble

Large public retirement funds are taking on “some of the riskiest types of property investments” to help close funding gaps, said Heather Gillers in The Wall Street Journal. These “so-called opportunistic investments” in new properties designed to be sold later for a profit jumped nearly sixfold from 2006 to 2016. Public funds are making these bets because most don’t have enough money to pay future benefits owed to police officers, teachers, and more. Estimates of “unfunded promises” range from $1.6 trillion to $4 trillion, and “the funding shortfall is straining taxpayers and putting pension promises in jeopardy.” But there’s danger in speculation. The real estate holdings of one California fund dropped 48 percent in the 2008 financial crisis. The fund now hopes to have 20 percent of its real estate portfolio—about $5.7 billion—invested in the riskier properties.