PIMCO’s Approach to Liquid Real Estate Exposure
Real estate investment trust (REIT) indexes offer liquid exposure to publicly traded real estate securities and serve as proxies for direct real estate investments. PIMCO’s real estate strategies are designed to deliver the returns of the REIT asset class plus additional return potential from active management.
In seeking to track and outperform the return of a REIT index, PIMCO looks to gain exposure to REITs through a combination of total return swaps linked to a REIT index as well as through actively selected single name REIT holdings. PIMCO’s portfolio management team leverages firmwide resources, including specialists within our credit research team, to identify pockets of value within the REIT market with the goal of outperforming the REIT index.
To the extent that a portion of the REIT exposure is achieved through total return swaps, PIMCO implements an actively managed fixed income collateral portfolio to back this exposure. Depending on the strategy, the collateral portfolio can be managed in a variety of ways. For example, the use of Treasury Inflation-Protected Securities (TIPS) to back the total return swaps is at the heart of PIMCO’s Double Real® approach, which offers exposure to two asset classes (real estate and TIPS) that historically have had a positive correlation to inflation. We also can manage the collateral in an enhanced cash style or as a custom strategy based on client preferences.