NCREIF unveils updated policies and criteria for its flagship open-end fund index

NCREIF unveils updated policies and criteria for its flagship open-end fund index

After a year of review, NCREIF is pleased to announce that the Open-end Diversified Core Equity Index (NFI-ODCE) has updated its index policies and inclusion criteria to suit the realities of measuring today’s market trends. The revisions incorporate investor, manager and consultant input, and are consistent with NCREIF’s history of ongoing improvement to its benchmark indices, other products and offerings. These improvements are essential to maintain ODCE’s ability to serve as the industry’s core beta benchmark.

Blake Eagle created the National Council of Real Estate Investment Fiduciaries, commonly known by its acronym, NCREIF, in 1977 as pension funds and insurance firms sought to diversify their investments in the wake of new government standards (i.e. ERISA law). By collecting property data from fund managers, Eagle built the NCREIF Property Index (NPI), which provided enough market clarity to meet fiduciary investment needs. It quickly became the prevailing commercial real estate performance benchmark.

During the 1980s and 1990s, NPI subscribers saw the full cycle expressed and could orient and position themselves accordingly. The NPI chronicled the rise of real estate investment alongside faltering stocks and bonds in the 1980s; as transactions accelerated, populating the index, it became more effective. The speculation-driven crash and fundamentals-driven demand boom of the 1990s was illustrated by 24 quarters of negative NPI capital returns followed by a cyclical recovery. The NPI was graduating into its current capability of generating commercial real estate risk/return profiles.

However, by the boom years of the 2000s, the investable real estate universe had evolved past the NPI. Commercial real estate was now an accepted strategic asset class, with multiple third-party data providers producing more transparency into market fundamentals and liquidity. The NPI, still valuable as a reflection of property performance, did not lend itself to true core investment strategies as it did not reflect ownership interests, cash balances and the use of leverage, which was becoming more acceptable in the core space. With an increase in investor demand for core open-end funds, it was now both possible and necessary to originate a more targeted and refined benchmark reflective of maturing investment strategies.

The ODCE was launched into this environment in 2005, with 14 active funds; to-date, the index encompasses performance data for 38 funds, with 25 currently active. Recent years have seen a sharp acceleration in fund count as managers continue to create more investment products that meet the ODCE criteria. The NPI remains invaluable for its applicability as a research, asset allocation and analytical tool, however the ODCE has become the premier private equity open-end core fund benchmark thanks to its sophistication, transparency and absolute attribution, which allows for portfolio performance analysis vis-à-vis the index.  

ODCE was always intended to be dynamic to preserve its status as a core beta benchmark. Now that an entire cycle has played out since its inception, and new strategies such as core-plus have emerged, NCREIF set itself the task of ensuring that ODCE’s status can remain intact as the investment landscape evolves. Over the course of 2018, an ODCE task force worked alongside portfolio managers to gather suggestions for maintenance and improvement, which were presented to and approved by the NCREIF Board of Directors in March 2019. Joe D’Alessandro, NCREIF’s Director of Real Estate Performance Measurement, comments, “The project was successful due to the active involvement of dedicated NCREIF members working together in a transparent and well-defined process.” These approved changes focus on both index policy and inclusion criteria. The full list of policies and criteria are disclosed in the quarterly ODCE report. Major, significant changes are as follows:

  • 80% of Gross Asset Value (GAV) to be in direct real estate (DRE) rather than 80% Net Asset Value (NAV) in all real estate;
  • 75% of GAV to be invested in the four major property types instead of 80% of NAV;
  • maximum concentration in any one property type changed to less than or equal to 60% of GAV instead of 65% of NAV; 
  • added must invest in three of the four major property types with a 5% GAV minimum in each;
  • 75% of fund GAV in properties 75%+ leased rather than 80% NAV in properties 60%+ leased;
  • 35% maximum leverage instead of 40%;
  • predominantly for U.S. institutional investors changed from available to U.S. defined benefit plans;
  • included requirement of minimum annual external appraisals;
  • added a four-quarter waiting period to enter index after meeting criteria;
  • existing ODCE members are to be granted a transition period but must be in compliance with new inclusion criteria and fund policies in time for their Q1 2020 data submission.

These changes are critical so that ODCE continues to reflect a pure core investment strategy.  Dan Dierking, President of NCREIF states, With these inclusion criteria and policies changes, the NFI-ODCE is positioned to continue to serve as the premier industry benchmark for institutional real estate investing.” 

As the new criteria are rolled out, we expect to receive feedback and comments, which will further fuel our work. During this period, we will be focusing on monitoring changes, maximizing transparency, and improving performance attribution to explain the key drivers of performance. Longer term projects will enhance the specificity of ODCE’s potential usage; relative attribution, valuation assumptions, and publication of the aggregate weighted average inclusion criteria are among our top priorities in the medium term.

NCREIF will conduct a webinar on Wednesday, May 22nd at 1:00 PM Central Time to provide details around the revisions and information on the timing and rollout.  The conference call is being webcast live and can be accessed here.  An online replay of the webcast will be available on NCREIF’s website at

Press Release