The trick is in the timing, he said.

"The public side is liquid, so therefore when investors start to get concerned about the future of asset values, they sell their REIT stocks, whereas they can't get out of their private-equity real estate funds," he said in a telephone interview. "That lag is what gives the institutional investor the diversification benefit."

The NAREIT study analyzed 22 years of data encompassing both the 2008 credit crisis and the savings and loan collapse of the early 1990s. It examined REIT returns compared with the three main types of real estate private equity: so-called core funds, which buy properties with mostly cash; high-yield "opportunity" funds, which can use as much as 70% borrowed money and aim to boost returns beyond 20%; and "value-added" funds, which exist between the two.

The study found that a portfolio consisting of 30% REITs, 49% in core private funds and 21% in high- yield funds averaged an 8.2% annual return from 1992 to the third quarter of 2010. A portfolio with 9% REITs and 20% in value-added funds returned 6.7% a year for the same period. The NAREIT-preferred allocation also had a superior Sharpe Ratio, a measurement that seeks to balance volatility with return expectations.

The private and public sides of real estate are contending for slices of what NAREIT estimates is a half-trillion dollar pie, or about 10 percent of the $5.3trn in pension investments.

A portfolio 30% in REITs may add too much risk to the investments, said Mark Roberts, global head of research at Dallas-based Invesco Real Estate, an asset-management company whose property-investment options includes private-equity funds.

"When you're looking at that kind of composition of real estate, what investors need to be mindful of is that is starting to take the leverage level of their real estate portfolio upwards of 40 or 50% or more," he said in a telephone interview. "Relative to, say, an unlevered real estate market, that amount of leverage will double the volatility of returns."

Invesco research shows that about 15% invested in REITs maximizes returns without increasing risk, Roberts said.

The largest, best-known real estate private-equity funds are run by investment banks including Goldman Sachs Group Inc. and Morgan Stanley, as well as asset managers such as Blackstone Group LP, Starwood Capital Group LLC, and AREA Property Partners LP. Many of them made their reputations with high-yield opportunity funds that delivered annual returns of as much as 40% in the late 1990s.