This study examines the liability hedging characteristic of both direct and indirect real estate, in the advent of fair value accounting obligations for pension funds. We explicitly model pension obligations as being subject to interest and inflation risk to analyze the ability of real estate investments in hedging the market value of pension liabilities and to quantify its role in an ALM portfolio. Based on a sample period of 1984-2006, direct and indirect real estate merit inclusion in an ALM portfolio because of their attractive risk-reward properties and its diversification potential, rather than its liability hedging abilities.

, ,
Rotterdam School of Management (RSM), Erasmus University

Brounen, D, Porras Prado, M, & Verbeek, M.J.C.M. (2007). Real Estate in an ALM Framework - The Case of Fair Value Accounting. Retrieved from