AP3 to raise global real estate allocation
REAL ESTATE - Swedish national buffer fund Tredje AP-fonden, AP3, is to boost its long-term real estate allocation to 8.5% - at least half of it in overseas property.
The public sector buffer fund said the increase - from a current allocation of around 2% - "will take time" but did not disclose when it expected to reach its target.
According to its 2005 annual report issued this week, the fund is currently scouting advisers to help it decide how to invest. Spokeswoman Christina Kusoffsky Hillesöy said: "We're looking at different advisers who can help us. Then we'll look at whether we want to invest in real estate companies or funds. We won't invest directly in real estate."
AP3's current real estate portfolio solely comprises a 25% holding worth SEK3.8bn (€407m) in real estate company AP Fastigheter, which generated a return of 47.7% during 2005. However, last year the fund invested for the first time in infrastructure private finance initiatives (PFIs). "It wasn't a one-time thing," said Kusoffsky Hillesöy. "We will probably invest more in infrastructure in future."
The 8.5% real estate allocation will incorporate further planned investment in timberland, which suffered slightly in 2005 as a result of domestic storms in southern Sweden. Although the company's holdings are outside the storm-hit areas, the freak weather conditions affected both timber volumes and prices.
Returns from the domestic property market reached 12.7% in 2005 - their highest level since 2005, according to IPD. Stabilised rental values, a decline in yields and strong demand from overseas investors drove above-expectations returns in retail, which generated returns of 17.3%, and residential, with total returns of 14.4%.