Geert de Nekker, director of real estate at Cordares and with more than 25 years experience of the real estate industry, believes that an international property investment strategy through unlisted vehicles is the best approach for most pension funds that want to invest in real estate.

“They will not always get a higher return on the overall property portfolio but the diversification will certainly improve their risk-return profile,” he says.

Cordares Real Estate specialises in indirect property investment. It manages €600m of institutional indirect real estate portfolios and is also an investment adviser for pension funds. Its parent company Cordares coordinates the management of a total of €5.7bn real estate assets.

Last year, Cordares anticipated the increasing demand for real estate investment by setting up indirect real estate pools for small and average-sized pension funds. No results are yet available but Cordares says the interest is encouraging. Even before it began marketing, two existing clients had invested a total of nearly x400m in total in four different pools.

“Asset liability management studies for pension funds usually indicate a weighting for property of 10% to 15% of their total portfolio,” says de Nekker. “In some cases the weighting is much higher. Since most of the schemes have a lower or even a zero real estate allocation, quite a lot of pension money is coming onto the property market.”

This trend, which started in the 1990s, has accelerated in the past six years, he says. “Depending on their investment strategy, most pension funds have opted for an international and indirect approach and aim at unlisted international property funds as a way of diversification.

“The returns of unlisted property highly correlate with those of direct property. What is more, unlisted property funds provide relatively easy access to diversified international property portfolios, managed by local dedicated teams.”

Unlisted property investment pooling also meets the need for diversification, as pension schemes look to spread investments over several funds, he says. “By joining one of our pools, they can increase their volume and enjoy the economies of scale as a consequence. Pension funds can participate with relatively small investments as well. While €5m is often the minimum limit elsewhere, we can already accommodate less than half of this in a widely spread

Unlisted property is the best opportunity to invest in real estate internationally, de Nekker says. “The returns have a strong correlation with ‘bricks’, and unlisted property is less sensitive to stock market and interest fluctuations. Therefore, it offers a much better risk diversification already within a relatively small pool.

“At the same time, it provides more than acceptable returns. As it is less liquid than listed real estate, schemes should consider unlisted property as an investment for the longer term.

“However, the flipside of the popularity of unlisted property funds is that is has become quite expensive. Because new investors are facing lower returns, they are shifting their investment strategy from a core/core plus strategy into a more value-added one. As a result, new funds will not only enter new geographical markets but also start operating in new sectors, like parking garages, hotels, nursing homes and medical offices.”

As one of the first pension funds’ asset managers, Cordares has responded to the developments by starting detailed investment pools, where customers have a say in policy. They must approve the investment plans and are represented by customers’ advisory committees. They can choose to invest in Europe, North America or Asia. Within the European pool, they can opt for offices, retail, residential and industrial properties.

The assets in each pool are spread over several funds, says de Nekker. “We have checked every fund in detail and have made sure every fund has a local management team. One of the other selection criteria is that the manager’s remuneration is in line with the investor’s interest.”


Cordares offers the participants a ‘considerable’ spread of risk within its pools. “We mainly invest in funds with a core and core-plus risk profile. This comes down to existing markets and proven products, which means very modest risks. There is also a growth fund with a non-geographical focus, targeting emerging markets. Opportunistic funds aim at investments with a higher risk level. Two existing clients have chosen the latter option with an investment of approximately €50m combined.”

So far, €250m has been invested in Europe. The pools for the US and Asia have attracted almost €75m each. Although it is too early for results, de Nekker is confident. “Real estate has consistently been one of the better asset classes,” he says. “Last year, returns of 12% up to 20% were not uncommon. Although the returns will come down, I’m sure indirect real estate will generate around double digits during the coming few years.”

According to de Nekker, there is enough interest in Cordares’ unlisted property pools. Within four years, the investments in the European pool will have grown to €1bn, he expects. The two other pools will probably cover about €250m by then. “Our intention is to create choice options for the US and Asia as well,” he adds.

The pools operate in a similar manner to the Dutch tax-transparent vehicle for asset pooling, the Fonds voor Gemene Rekening, which was endorsed by the finance ministry last year.

“Our pools are a typical Dutch concept. They are basically a mutual contract between the participating investors and the manager,” de Nekker explains. “It is certainly cheaper than the structures under Irish and Luxembourg law. And the declared support of the Dutch Treasury has increased the faith in the Dutch pool principle.

“As a consequence of this concept, investors benefit from tax advantages, such as being exempt from paying VAT over the management fee. And because of the scale, additional costs are lower as well. Small pension funds don’t need to employ specialist staff for management, legal and tax matters and local knowledge. All these issues are covered by our six-staff strong specialist team. And any necessary back-office activity is shared by the large Cordares organisation.”

Although only existing pension fund clients from the Netherlands have participated up to now, foreign schemes can also take part. Geert de Nekker says: “We don’t have foreign clients yet but we won’t refuse any interested party if it fits within the structure of the pools. Especially if it is from Italy, which is Cordares’ priority market.”

De Nekker says the challenge is to further refine the existing pools. “We also want to introduce choice options for the US and Asia pools, similar to the European pool. This is very likely to happen, if the combined pooled assets total €1.5bn after four years.”

Cordares is considering setting up direct real estate pooled funds with pension funds abroad, as a way to diversify risks, de Nekker indicates. It is examining a cooperation with foreign pension funds, with which it could share local expertise. “Pooling direct real estate will be even more attractive, if local pension funds acquire and maintain pooled properties,” he says.

De Nekker says Cordares wants to target the German and Belgian markets initially for direct real estate pooling, because of their vicinity and similar culture.
Cordares has taken steps to get a foothold in the Italian
market for consultancy and asset management.