Tuesday, November 21, 2006

REITS as an Investment Option

The $200 Billion government Thrift Savings Plan (TSP)recently concluded they would not add a separate Real Estate Investment Trust or REIT fund as a program option. The following criteria were used to make this determination:
  • Is it a major asset class not currently offered as an investment option?
  • What financial benefits could participants expect from participating in the new fund?
  • Is the fund tied to indexes that could be used for the investment?
  • Are peer plans adding such funds?
The program further declined separate investments in non-U.S. bonds, value and growth stock funds, emerging markets stocks, TIPS and commodities for not meeting all the criteria.
The TSP is unique in scale and composition so these criteria may not fit all Plans. It does however, provide a nice illustration of the kind of prudent decision making process fiduciaries should adopt in developing their investment line-ups.

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