the Pension Real Estate Association’s Plan Sponsor Research Report, pension funds allocate approximately 6.0% of their assets to real estate, making it one of the largest investable asset classes, after equities and fixed income. Because of the significant transactions costs involved with investing in real estate, derivatives can, but also might not, improve the efficiency of the market. United States The market for US real estate derivatives, while in a nascent stage, made significant progress in 2007. There are now a diverse set of indices and methodologies being used to create and structure real estate derivatives, for both residential and commercial real estate. United Kingdom In the UK, the market for property derivatives did not begin until 2004. However, since the market’s inception, the growth has been significant. Through the third quarter of 2007, trades with an outstanding notional value of 7.9 billion pounds have been executed. The U.S. market is still emerging, and has been limited somewhat over the last year by the global credit crunch and uncertain values of mortgage-backed securities. However, the market in the U.S. is now emerging quickly, with over $500 million worth of transactions to date in 2007. Australia Taking the AUD 139.5 billion in Australian residential and commercial property sales recorded in 2006, and applying a 1-to-1 derivatives-to-underlying ratio, the potential PD market would be larger than the $89 billion Australian credit derivatives market. A 2-to-1 ratio would make it more active than the $215 billion interest rate options sector, and a 3-to-1 ratio would put it within reach of the $472 billion ASX options industry. RP Data-Rismark indices is regarded as the market leader of Australia's Property Derivatives Market. References Derivatives (finance) Real estate investing