How TIAA’s General Account plays long-term trends with alternative investments

Time to read: 6 minutes

Marc deBree discussed what’s distinct about TIAA’s approach to alternatives

TIAA’s nearly $300 billion¹ General Account, or GA, has by far the largest investment portfolio of alternatives investments among peer insurers.² We sat down with Marc deBree, CAIA, head of real estate and alternatives, to answer common questions about this crucial portion of the GA’s asset allocation.

Marc - There are two main functions. Number one: They help us to diversify. Number two: They help us to seek a higher total return. Basically, we accept the additional risk in alts because we expect higher returns to supplement the returns of our traditional fixed income investments, which make up the bulk of the GA’s portfolio.

To take a step back, our global alts portfolio includes equity investments in thousands of real estate, real asset and infrastructure properties, as well as private equity fund investments and individual equity co-investments alongside the funds. Many investments are in highly tangible assets—California vineyards, South Carolina timber plantations, apartment buildings in New York, toll roads in Florida. People can see them, use them, get their food from them, build houses from them.

Our alternative investments offer access to many different value drivers across many different parts of the global economy, which helps provide true diversification and long-term portfolio resilience.

Marc - Our team doesn’t get caught up in the day-to-day noise, but we do watch for knock-on effects that drive the long-term value and performance for our investments. Regarding trade policy, changes in one geography often create tailwinds in another. When there was a lot of U.S.-China saber-rattling during the first Trump administration, China put significant retaliatory tariffs on U.S. soybeans. Well, China still needs soybeans. We have significant ownership of soybean farms in Brazil, and both that land and the value of those soybeans benefited from the change in trade.

We care mostly about big-picture value drivers—cost of capital, government industrial policies, global trade patterns. For instance, we’ll consider immigration policy through the lens of how it might affect U.S. farm labor supply, or how tariffs might affect consumer behavior globally.

If federal dollars are a big part of a given business model, and those funds start to dry up, it may slow growth here and create opportunities there. On this front, we’re watching whether business models for some of our affordable housing and renewable energy investments may be changing.

Marc - That’s a good question. We maintain the highest possible ratings with three of the four major rating agencies³ and can still dedicate a sizeable portion of the GA’s portfolio to real estate and equity alternatives.

There are three critical aspects to why we can do this. The first is financial strength. Our capital base—the financial surplus in excess of our liabilities—is the largest among all insurers.⁴ One reason some managers fail with alts, or can’t meaningfully pursue them in the first place, is they’re not able to tolerate losses in relatively illiquid assets. Without a large capital base, it’s difficult to absorb the risk of alternative investments and still maintain high ratings.

A second point is that our liabilities are extremely predictable, which means we can focus on being long-term investors. Savers and retirees typically rely on fixed annuities such as TIAA Traditional⁵ to deliver dependable income for many years, often decades. That means we have a long time to work with that capital and pursue higher total returns with relatively less liquid investments. In a way, the long-term natures of our annuity products and our investment style work hand in hand. Our long-term focus also gives us flexibility to maneuver through market cycles. If real estate equity lags, as it has recently, we can counter that by selling off bits of our stronger-performing infrastructure investments. We can also be opportunistic buyers when others are under pressure to sell.

Finally, our wholly owned asset manager, Nuveen, has deep capabilities and expertise in originating and structuring alt investments on a global scale. This has given us the advantage of scope and scale in this space.

Marc - Whatever the news is anywhere in the world, there’s something relevant happening either with some existing investment we’re managing, a new investment we’re considering, or some other sort of strategic consideration we’re following. We’re trying to look around the corner and ask: How do I invest in that? How does this trend impact what we do?

I just came back from an agricultural research conference where there was a lot of discussion about future demand for protein given adoption of GLP-1 injectable weight management medications. Protein-rich diets help prevent muscle loss on these medications and, by some estimates, a third of the world’s population may eventually be on one. Eggs, beans, and nuts are important sources of protein on their own and the corn from many of our farms goes into the feed for livestock. So, we’re paying close attention to how the GLP-1 trend evolves globally.

We’re also spending time ensuring that each alt asset class is maximizing returns as efficiently as possible. Infrastructure, for example, was first conceived as an income-driven asset class. Think toll roads—they’re dependable, steady income investments. What you give up is potential for price appreciation, so there’s opportunity cost when it comes to total return potential. Given this, we’re revisiting our approach to equity infrastructure investments so that we can build in more of a price appreciation component when possible. The GA also invests in a relatively new energy infrastructure credit strategy—essentially private lending to companies to fund energy-related projects. This credit strategy offers an alternative approach to generating the infrastructure-related income that we need, which allows us to be more focused on price appreciation potential elsewhere in infrastructure.

We are especially focused on investment opportunities that fit into the growing global demand for power, food, fiber or housing. People in the U.S. have long been accustomed to renting their home, but it’s a newer concept for most of the rest of the world. In Spain, for example, we’re building for-rent housing and that’s been well received. The idea that you’d move out of your parents’ house and rent an apartment with amenities is relatively new there. Student housing, too, is something we’re involved with. In places like Australia and parts of Europe, it is not efficient for universities to keep up with the growing and changing housing needs of their students, creating an opportunity for us to develop the high-quality, purpose built, student housing that is needed.