If one is given a million pesos to invest over a period of thirty years without withdrawal, more often the most likely asset to be chosen is real estate. No stock or bond can approximate the investment return that land can realize over a long-term horizon. In the Philippine stock market the index is back to where it was in the late eighties whereas bonds average less than 12% per annum. Real estate values, however, grew by leaps and bounds especially in the early nineties such that annualized returns where known to hit over 15%. Its intrinsic value is especially appreciated in periods of inflation and economic slowdown. During adverse times land is known to preserve its value unlike other assets that tends to depreciate or diminish in price.

One particular financial institution that has monitored this favorable trend towards real estate venture is the pension fund. Considering the magnitude of multiple fold returns, it is therefore natural to expect pension funds to allocate a percentage of their portfolio in real estate investments. The difference among pension funds lies, however, in two modes of their entry in this asset class?the percentage of allocation and extent of participation in the real estate industry.

The percentage of allocation depends on the investment guidelines outlined by the trustees as discussed with the trustors. In most cases the trustor provides a reasonable level of discretion for the fund management to decide how much to allocate in the investment pie for property investments. If the industry is on the upside the tendency is to invest heavily on real estate and light once the boom is tapering. Typically, after allocating a routine percentage in stocks, bonds, money market instruments and other fixed income or equity placements, a residual value of total invested funds is set aside for adventurous but not so speculative investment one of which is real estate.

In a down property market the fund's ability to divest and reallocate investments out of real estate will depend on the nature of participation or how deep was the fund involved in real estate. Whether it is in equities, project or financing, each type of investment will require a specified level of effort to exit. If the real estate equity is traded then the stick can be easily sold. If the investment is in land or project financing, the exit mechanism is more difficult. Even worse is if the fund entered into full property development and has engaged in acquisition, construction and marketing of real estate.