Dipping a toe into new waters
European pension funds are widening their interest in real estate by looking to increase allocations, to invest overseas for the first time and to take advantage of new product lines.
Delegates to the first IPE Real Estate European Investor Forum, held in Barcelona in February, gathered to hear some of the leading lights of the real estate industry talk about current issues, global real estate markets and the investment options open to pension funds.
The one-day event was organised by IPE Real Estate, in association with Euromoney Investor Shows. It offered European pension funds a chance to learn more about the asset class and meet with their peers. A broad church of delegates included already established funds – such as ATP – which have significant real estate investments, to smaller funds with no current allocation.
Speakers at the event included David Bradford, managing director of Pramerica Real Estate Investors, who spoke about the role real estate can play in a pension fund’s investment strategy and
Dr Robin Goodchild of LaSalle Investment
Management, who outlined the prospects for a number off global real estate markets.
The delegates also heard from their peers. Representatives from Dutch pension fund ABP, Irish Life and Danish public authority pension fund ATP took part in a panel discussing the best methods for benchmarking a real estate portfolio. And Esbjorn Wincent, head of alternative investments for
Folksam, described how his fund had developed a new strategy to diversify its real estate investments by investing in a pan-European real estate
fund-of-funds for the first time.
Of the 50 plus pension funds representatives present, more than 50% said they planned to increase their real estate allocation, while 30% were pension funds with no current allocation that were seriously considering investing in real estate for the first time. Only one pension fund said it was planning to decrease its real estate allocation.
Richard Balfe, of the MEP’s Pension Fund, said: “We found the event very useful and it was good to meet people in a similar position to us. We’ll look at real estate more favourably in the future.” The MEP’s fund currently has minimal real estate investment through real estate securities, but Balfe said it would consider a wider range of options now.
Hooman Kaveh, chief investment officer of Irish Life’s pension fund, which currently has only e35m invested in real estate unitised funds, said: “I came to the event to see what the options were for investing in real estate across Europe. We are always looking to spread our wings and look outside the small home market. I’m not sure whether I will want to invest as a consequence, but it’s been
interesting hearing what the real estate industry
has to say.”
Mads Rude, portfolio manager at ATP, which has €1.5bn invested in real estate both directly and through unlisted funds, said the fund planned to increase its allocation to real estate to take further advantage of the asset class’s high income yield
and stable returns. ATP is looking to diversify out
of its home market by investing in unlisted real estate funds across Europe, and now has investments in 12 funds.
Many of the pension fund delegates showed
particular interest in real estate investment trusts. These are tax-exempt listed real estate vehicles which allow investors liquid access to real estate and which pay a much higher dividend yield (up to 6%) than other stocks. REITs, which were pioneered in the US and Australia, tend to track the real estate market more than they track the stock market.
Jon Finnbogason, an asset manager at Icelandic fund Frijalsi Lifeyrissjodurinn, said: “Learning more about the different types of indirect investment, such as REITs, has made me more likely to invest in real estate.”
A real estate asset allocation game asked the audience to decide the best way to allocate a brand-new €500m allocation to the asset class. Delegates made initial choices based on their existing knowledge and then heard about a range of real estate investment options. REITs proved one of the most popular sectors for investment and significantly it was the sector which saw the greatest increase in popularity (up about 25%) after the delegates had heard more about it.
IPE Real Estate will be holding a UK Investor Forum on June 21 in London