This study examines the investments of Dutch pension funds in domestic and international real estate. It first introduces the unique features of real estate investments, the Dutch pension system and the investment policies of the funds. Historical total allocations to real estate are around 9 percent of total assets. Pension funds have several reasons to invest in real estate of which liability hedging is very important. Previous research suggests that real estate can hedge the specific liabilities of pension funds. Most literature sees allocations between 10 and 15 percent as reasonable, but might be higher for a liability driven investor. The data and methods of this study are designed to provide insight in optimal allocation to domestic and international real estate for a long-term, liability driven investor. Results show that an average allocation of 9 percent is equitable and that international real estate should be the most important sub-class of the asset.

JEL code: G230, G110