TSP board resists pressure to establish a real estate fund

Members of the Federal Retirement Thrift Investment Board are against an outside push to create a separate investment fund for the plan based on real estate.

During a recent meeting, board members discussed and criticized a lobbying effort that was launched by outside interests-including the National Association of Real Estate Investment Trusts-to add a sixth fund to the thrift plan, which now has five funds.

The G Fund is invested in government securities and is regarded as the most conservative option. The F Fund is invested in fixed income securities, the C Fund in common stocks, the I Fund in international stocks, and the S Fund in small and mid-size companies. The S and I Funds were added in May 2001.

The Thrift Board also is preparing to add a life-cycle fund, which would be an automatically diversified collection of existing funds.

The TSP is a 401(k)-style retirement plan for federal employees with 3.3 million participants and more than $150 billion in assets.

Lobbyists approached lawmakers several times last year seeking support for a new real estate fund, according to sources familiar with the issue. Officials at NAREIT said they believe a fund based on Real Estate Investment Trusts would be a boon to TSP participants.

"We believe the inclusion of REITs in the TSP is a great idea," said Jay Hyde, NAREIT's vice president of communications. "There should be more options for TSP participants."

Hyde said that a "compelling case" could be made for the inclusion of REITs, which historically provide an "impressive" return on investment.

Thrift officials pointed out that the existing TSP funds already are significantly vested in real estate. More than 8 percent of the S Fund is invested in real estate stocks, and 0.5 percent of the C Fund is in real estate investments. The real estate holdings in those two funds represent $855 million.

TSP Executive Director Gary Amelio told the board that the Thrift plan would be the thirteenth largest real estate mutual fund in the country, based on those holdings.

He said that any effort to add another fund would need to be thoroughly vetted by TSP officials and outside experts. Amelio indicated, however, that he was extremely hesitant to add a fund invested in a single industry.

Board Chairman Andrew Saul and several members vocally supported Amelio's stance.