Most major economies are facing significant medium-term decisions: the euro zone countries have to decide on new rules that imply significantly more union or the end of the currency regime as we know it; the United States is facing a “fiscal cliff”; the Japanese sovereign debt issue is a ticking bomb; and China has to manage a rebalancing of its economy from export-driven to more internal consumption. All this means that most G7 economies are likely to experience a low growth environment along with high volatility in stock prices and very low nominal bond yields for an extended period. This situation presents an acute problem for pension funds that are squeezed between low and falling asset returns and higher and increasing liabilities.

This environment calls for rethinking, or at least challenging, the way in which some pension funds approach real estate investment. This short article is intended to be a bit provocative and to challenge some of the common wisdom.