Originally published by PERE

With increasing adoption of the total portfolio approach, the industry is having to work harder to sell the asset class.

Multiple three-letter acronyms can strike fear into the hearts of private real estate executives these days - SEC, IRR, DPI, to name a few. Add another to the list: TPA.

“TPA isn’t currently that helpful for real estate,” says Andrew Angeli, global head of real estate research and strategy at Zurich Insurance. “Maybe that’s why a lot of real estate teams are afraid their organizations will embrace it.”

Standing for total portfolio approach, TPA evaluates investment decisions in the context of the total portfolio rather than within asset-class silos.

At many of the world’s largest pension funds and sovereign wealth funds, this has led real estate to come under the harsh scrutiny of CIOs. Beginning first with covid-related disruption, followed by interest rate hikes in 2022-23, the asset class has been a performance laggard for most of this decade.

After hitting peak returns in 2021, the NCREIF Fund Index – Open End Diversified Core Equity reached a cycle nadir of -12 percent in 2023, followed by -1.4 percent in 2024. As of Q2, returns remained in the single digits in 2025 and through Q2 2026, NCREIF results show.

“The frustration with real estate on the part of CIOs has just increased over time, as they’ve seen basically no recovery of value in three years,” says Taylor Mammen, CEO of consulting and advisory firm RCLCO Fund Advisors.

The adoption of TPA among institutional investors predates real estate’s underperformance – and began gaining steam in the early part of the decade, when CIOs questioned fixed-income allocations at a time when the asset class was generating low single-digit returns.

“But I think that its growth in popularity has coincided with difficult conversations about real estate performance within portfolios,” Mammen says.

CIO frustration, moreover, has now reached “almost fever pitch” because of the additional increases in US Treasury yields that may be enduring, he adds. “At minimum, they’re sending a message that the valuations on the books still look high, and CIOs are worried about [whether] there is another shoe to drop within real estate.”

Telling the story

Against this backdrop, real estate has become a harder sell – whether it is an investment officer pitching a fund commitment at a board meeting, or a manager looking to raise capital from a capital provider.

“You’re finding now real estate folks who go to the investment committee all of a sudden having to defend a real estate investment that just would have gone through swimmingly in the past,” said Gila Cohen, managing partner at boutique real estate firm Vanbarton Group, speaking on a panel session at the Expo Real conference in Munich in October. “It’s very hard for them to defend a lot of real estate investments against an infrastructure investment or against a private equity investment at the investment committee.”

Meanwhile, Jan Plückhahn, head of real estate at Swiss Life Asset Managers, has seen infrastructure throughout

Europe become “a more interesting topic” for the insurance company’s clients. With many institutional investors at their allocation limits for real estate, “for further third-party growth, we see, on average, a higher need for infrastructure equity investments compared to real estate,” he says.

That said, those clients that have seen positive returns with their real estate partnerships and investments are still willing to reinvest their capital into follow-on funds, he notes.

As real estate jostles for its place in institutional portfolios, “it’s making people rethink their approach, which is not a bad thing because it makes people better at explaining why the real estate that they’re investing in does make sense and should be in the portfolio,” Cohen said at Expo Real.

Indeed, real estate managers are now thinking harder about how to sell the asset class to investors.

“What do I think is really great about real estate?” asks John O’Driscoll, global co-head of real estate at investment manager BNP Paribas AM Alts. “To non-specialist investors, I think it’s easiest to tell the story of prime real estate.”

Despite the rising rate environment, high-quality real estate still can deliver a competitive yield, offering a combination of current return and capital appreciation, he says. “For the best assets, we’ve had a very consistent period of rental growth to the point now that it’s easier to forecast year-on-year, especially with new supply highly constrained. And I think it’s a very powerful asset type on that basis. And if you keep it in an appropriately leveraged format, with the right horizon, it should perform competitively.”

He continues: “I think the case for real estate is strong, but you have to tell that story and orient investment to the right assets in the appropriate structure. There are parts of the market where the risk-return proposition doesn’t stand up and situations where excess leverage distorts the return profile.”

Charles Allen, head of European real estate at London-headquartered manager Fiera Real Estate, says the firm tries to align its platform with total fund-factor requirements such as inflation protection, yield, operational alpha and resilience.

“Whether deploying across value-add equity, real estate debt or logistics, we tell the story of how we can offer relative-value exposures across the capital stack designed to both compete with and complement other asset classes,” he says.

Meanwhile, Mark Siezen, CEO of Amsterdam-based manager Bouwinvest Real Estate Investors, says pitching to investors requires focusing on four benefits of real estate difficult to find in other parts of the institutional portfolio: stable income that keeps pace with inflation, structural demand underpinning that income, diversification and the asset class’s visible role in society.

That pitch also means taking a long-term rather than short-term view of real estate. “Higher rates are putting pressure on values, but we expect the decline in real estate to be limited and mainly confined to 2027, with a recovery from 2028,” he notes. “For long-term investors, the upcoming period may be an attractive moment to build or expand exposure, at higher yields and ahead of the next upturn.”

Figuring it out

On the back of ongoing underperformance, private real estate fundraising fell to $30.74 billion in Q3 2026, the lowest quarterly total since Q1 2013, when just $25.66 billion was raised, according to PERE’s Q3 2026 Fundraising Report.

But how much is TPA responsible for the continued fundraising slump?

For Sven Eggers, head of private markets EMEA and global head of real assets at Boston-based financial services firm State Street, TPA has had some impact. During the Expo Real panel, he noted that while real estate fundraising volumes have declined, “we have [seen] fundraising rates increase, especially on the secondary side, on the infrastructure side and on the debt side. And part of that certainly has been caused by the total portfolio approach.”

Mammen, however, says the industry should not blame TPA for all of the potential problems that real estate might be having raising capital, or might have raising capital in the future, “in part because real estate is underperforming whether TPA exists or not.”

He argues managers in many cases have failed to demonstrate why investors should invest in real estate broadly. “I do think that we as an industry need to get our act together, both to deliver better returns, as well as to argue effectively for why investors should look at us.”

How to make the case for real estate is far from clear cut, however. “To be candid, I think the industry is still trying to figure out what’s going to resonate with investors,” adds Mammen.

Still, certain key arguments prevail in RFA’s discussions with institutional investor clients, such as that real estate should not be seen as a proxy for private equity, he says. Such an expectation resulted from the industry historically raising a lot of capital in opportunity funds, but those higher-returning opportunities have only emerged with a change in the market cycle. Promising such returns in the middle of a cycle is “usually disingenuous.”

Instead, Mammen says managers should emphasize the benefits for investors, such as diversification against concentrated exposures to AI and technology: “I think real estate can provide a really effective diversifying benefit if there is any kind of economic pullback to AI.”

Real estate is also the only asset class that has undergone any type of correction in the past five years, he adds. Investors should pay attention to its “imperfect but fairly transparent” valuation approach, something he says is “questionable” in other asset classes like public and private equity.

Where TPA requires investment committees to judge the relative risk-adjusted returns across different asset classes, pitching can also mean highlighting specific subsectors of real estate where returns are competitive. For Mammen, these include senior housing, data centers and industrial development.

When looking at opportunities today, “it’s not about the sector as a whole; it’s about picking your spots within that sector and those slices of the market actually do have really attractive risk-adjusted returns that would stack up against any other asset class or opportunity in a TPA approach,” Brad Gries, CEO at LaSalle Investment Management, said during the Expo Real panel.

“But is there an investment committee for a large investor that understands how to get that granular to understand the risk and return opportunity within that slice of the market against a broader asset class? I think it’s a hard job.”

Favouring value-add

Within the real estate allocation itself, executives are divided over what risk-return profile TPA favours most. Mahdi Mokrane, head of fund management, real estate at pan-European manager Patrizia, believes the approach pushes investors toward value-add.

“If you look at the performance of risk assets today, mainly stocks and a rise in bond yields, the required returns bar is being pushed upwards. That means you need to invest in core-plus, value-add or high-quality enhanced return strategies to meet that bar.”

Higher-return strategies are “an area which we want to increase going forward,” agrees Plückhahn. To date, Swiss Life Asset Managers has invested in value-add real estate on a deal-by-deal basis, predominantly in Germany for condominium developments and big-box logistics facilities. However, based on demand from total portfolio-focused clients, the next step will be to offer value-add fund structures, he notes.

While Redevco has launched core and core-plus strategies to date, “we are looking at that higher return in other strategies like industrial outdoor storage,” concurs Sasha Silver, head of the global client capital group at the Amsterdam-based manager. “You have to be much more granular about the operating profile [of an investment], how you are delivering that value creation.”

While TPA is reshuffling capital flows for certain investors, that shift is happening within, not out of, the property sector – but not always in the name of higher returns, she adds.

Still room for core

In contrast, “TPA can be a challenge for core investment,” said Michael Neal, global CIO and interim CEO at Savills Investment Management, during the Expo Real panel. “We’re in a world where, whether you’re core, core-plus, value-add or opportunistic, you’re demanding a little bit more return.”

Amid a period of continued underperformance in real estate, “I think the one controllable that you can have as a core investor is looking at the income stream, looking at the durability of the cashflows and just really playing to the income growth story,” he said.

TPA adoption “is going to undoubtedly have an impact broadly on core,” Neal continued. “And I think for core, you just need to ultimately pick your spots, pick your sectors, and look to be able to demonstrate that you can deliver interesting returns from core, even in the context of a total portfolio approach.”

Fellow panellist Martin Towns, global head of real estate at London-based manager M&G, took a more balanced view. While some clients will see a core allocation as “a key building block” in their real estate portfolios, those that adopt a TPA approach will look more at core-plus and value-add strategies.

“I think the adoption of TPA by some investors is a healthy challenge to this asset class,” he said. “I think it’s something we should welcome, and I think that conversation at investment committee about how does that real estate investment stack up compared to other asset classes? That’s healthy for the industry. That doesn’t mean that everybody is going to move in that direction.”

Shrinking allocations

The rise of TPA has coincided with a reduction in institutional investors’ target allocations to real estate. The average slipped to 10.7 percent in 2025 from 10.8 percent the prior year, according to advisory firm Hodes Weill & Associates and Cornell University’s Real Estate Allocations Monitor survey published last October. This marked the first such decline in the survey’s 13-year history. The target allocation remained at 10.7 percent in 2026.

“TPA may be a contributing factor, although we cannot isolate its impact on the change in target allocations,” Doug Weill, senior managing director at Hodes Weill, tells PERE. “For institutions that are moving away from fixed asset class targets, real estate will need to compete more directly with other investments on returns, risk and also liquidity. That does not necessarily mean less capital for real estate, but it raises the bar for earning an allocation.”

Bernhard Karas, managing director of private capital markets at Singapore-based CapitaLand Investment, says that even when investors have not adopted TPA, they still talk about “building resilience” within their portfolios.

Ultimately, this could involve reducing exposure to commercial property as returns no longer make the cut in a higher-for-longer interest rate environment.

He says real estate’s position within an investor’s portfolio all comes down to relative value: “Assets haven’t repriced to a level where real estate looks attractive compared to fixed income on a relative basis. So, for new real estate investments to happen, investors will need to exit some existing investments.”

Others contend real estate allocations should not be viewed in isolation. Sander van Riel, head of EMEA for indirect private real estate strategies at New York-headquartered CBRE

Among the earliest TPA adopters were large pension funds and sovereign wealth funds in Australia, New Zealand, Singapore and Canada – institutions that had scale, long investment horizons and growing private market allocations. Across the US, UK, Europe and the Middle East, “partial adoption is accelerating, though most institutions remain closer to enhanced SAA than to a fully integrated TPA,” according to a MSCI report published in July.

“There is an awful lot of capital that’s not working on a TPA approach,” Savills’ Michael Neal said during an Expo Real panel in October. “We’ve got a heavy skew towards German clients, for example, and I’d say that it’s not really resonating so far,” partly because such groups are subject to the country’s BaFin regulations covering banking and other financial industries.

Meanwhile, Zurich Insurance has not adopted TPA, but “we’re in active discussions in how we’re thinking about investments,” says Angeli. “Within real estate, we have flexibility.”

That said, a decade ago, TPA adoption “would have helped us massively, when bond yields were so low. Real estate probably would have benefited even more from a higher-yielding allocation.”

Bouwinvest’s shareholder and largest client, bpfBOUW, also does not use TPA, according to Siezen. However, he says he would not be surprised if several other Dutch pension funds decided to adopt TPA soon.

“Many pension funds are being advised in this direction. They may be seeing some of their peers across the globe doing it and it is natural to look at what others are doing,” he says.

He adds global investment advisers are encouraging the use of TPA because of how ongoing global volatility creates considerable uncertainty in allocation decisions.

Another TPA dissenter is Italian insurer Assicurazioni Generali. Alberto Agazzi, global head of third-party capital and strategic partnerships at Generali Real Estate, the group’s real estate investment management arm, says the insurance-backed firm is unlikely to adopt TPA because of Solvency II, the regulatory framework for insurance and reinsurance companies in the EU and the UK. Regulation makes it more difficult for insurers to fully implement a TPA approach despite its theoretical merits, he adds.

Indeed, Agazzi believes TPA will be more widely adopted by pension funds than insurers: “Pension funds can generally take a longer-term investment approach, but insurers need to align their portfolios more closely with regulatory and balance-sheet considerations, potentially limiting their flexibility.”

Investment Management, notes that some investors are not necessarily retreating from real estate, but broadening their private markets exposure. As a result, real estate may remain relatively stable as a percentage of the organization’s overall portfolio, while infrastructure and other private market allocations grow around it.

For example, one of CBRE IM’s investor clients previously had approximately 10 percent of its capital allocated to real estate; a decade later, that allocation is still around 9 percent. Meanwhile, the investor’s private markets allocation has grown from 10 percent to 20 percent, primarily because of an increase in infrastructure investments over that period.

Meanwhile, Mammen does not expect real estate allocations to take a major hit. “I have no examples or knowledge of any investors that are planning to abandon real estate or meaningfully reduce their overall exposure to it,” he says.

“The changes anticipated are modest to moderate in general, and I think investors continue to be open-minded. If real estate were to generate better returns going forward, they’d be back in. Nobody’s writing this off on a permanent basis.”