Abstract
Traditionally, pension funds invest heavily in fixed income securities. More recently, pension funds have also been increasing their exposure to non- conventional asset classes including real estate. Over the last two decades, pension funds in Tanzania have increased their real estate allocations to more than 18%, which is relatively higher compared to the international practice. This paper looks into investment practice by pension funds in Tanzania with a view to examining whether real estate inclusion contributes to the attainment of optimal portfolios. The study entails mean-variance optimisation analysis of pension funds’ portfolios, covering a period between 2009 and 2018. Findings show that real estate inclusion in pension funds’ portfolios has risk reduction potential. This paper enriches literature on pension funds’ investment practice, particularly those in the countries that are characterised by nascent capital markets institutions. The study also compares conventional literature on pension funds investment practice and the reality on the ground.
Highlights
Capital intensiveness is one of the idiosyncratic features of real estate investment
This paper looks into investment practice by pension funds in Tanzania with a view to examining whether real estate inclusion contributes to the attainment of optimal portfolios
Entry of Pension Funds in the Real Estate Market. It was noted from the interviews with investment managers of the five pension funds that one of the main challenges that pension funds in Tanzania have been facing is getting the right investment opportunities, given the limited investment options available to leverage diversification benefits, capital growth, and stable income and attractive returns
Summary
Capital intensiveness is one of the idiosyncratic features of real estate investment. This is more valid for market settings that are characterised by infant financial market institutions epitomising the majority of sub-Saharan African countries, among other developing countries. M. Kongela promote private investment, both local and foreign. Most of these countries are among the poorest in the world with a small base of private investors. In the absence of a strong private sector base, large investment projects and schemes are mostly carried out by state or quasi state-owned institutions
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