UK - Life and pension funds are the most risk-averse of UK real estate investors, a conference in Brighton was told today.
Simon Fairchild of Investment Property Databank, or IPD, said: “These funds were closely followed by unitised property funds”. While limited partnerships “show a degree of risk a notch above that of life and pension funds but below that of the traditional estates and property companies”.
Fairchild was examining the conclusions of joint study by IPD and LaSalle Investment Management which looked at the risk aspects of 230 UK real estate portfolios monitored by IPD.
The study looked into the issues of where risk exposures come from by examining the risk factors involved in a number of separate categories including life insurer funds of over one billion pounds (1.43 billion euros), pension funds under 150 million pounds, balanced property unit trusts and top performing funds over the past three years.
The very size of the large life funds allows them to reduce their ‘concentration’ risk considerable, said Fairchild. “This allows them to take risks in other areas, namely exposure to developments and the high beta, high risk markets of central London offices and shops.”
But small pension funds have an overall risk tolerance as the large life funds but have different risk profile, said Fairchild.
“Their relatively small size indicates that they adopt a high degree of concentration risk although this is mitigated by their avoidance of high beta markets and developments.”
Property unit trusts have similar levels of risk as small pension funds but in different areas. By contrast limited partnerships show much higher concentration of risk but with lower exposures to the high beta markets.
“The top performing 20% of funds over the last three years have accepted a much higher degree of risk than the average fund,” he said.