Danish pensions giant ATP is on the hunt for new high-quality real estate investments in Denmark and Northern Europe and aims to increase its current property allocation of DKK30bn (€4bn).
The DKK600bn statutory pension fund is steering clear of new investments in index-linked bonds for the time being due to market pricing and sees real estate as good investment class for maintaining the buying power of its pension savings.
Henrik Gade Jepsen, ATP’s CIO, told IPE: “We are interested in high-quality real estate, but we have not allocated a certain amount to real estate investments.”
He said this investment expansion would increase ATP’s current allocation to property of approximately DKK30bn, but added that there was no specific target.
How this planned investment exercise proceeded depended entirely on the investment opportunities that arose, he said.
He said it was impossible to say exactly how much new investment money ATP would put into real estate, adding: “It very much depends on price, quality and location. We are primarily interested in high-quality real estate with strong tenants on long leases.”
ATP’s search is mainly geared towards direct investments in Denmark and Northern Europe, according to Gade Jepsen.
ATP reportedly sold a DKK90bn portfolio of index-linked bonds back in 2012.
“We will buy index-linked bonds again when we find them attractive on an absolute basis and relative to other inflation investments,” Gade Jepsen said.
Across asset classes, investors are now facing a period of low prospective returns, he said.
“But there are real estate investment opportunities that are quite attractive, especially compared with index-linked bonds,” he said.
ATP expects its real estate investments to yield quite attractive real returns but without adding too much risk to the investment portfolio.
“Investments like our recent €400m Galaxy transaction in Brussels matches ATP’s wish for long and stable cash flows from well-located properties with low risk,” Gade Jepsen said.
Earlier this month, a partnership in which ATP has a 90% share paid €475m for the North Galaxy office property in Brussels, which is let on a long-term lease to the Belgian Ministry of Finance.
“As a pension company, we like these inflation-adjusted cash-flows from prime real estate because they maintain the purchasing power of the pension savings,” he said.
ATP has increased its allocation to real estate to 5.1% of total assets from 4% at the end of 2012, with the pace of this expansion rising in recent months.
Between the end of 2012 and the end of 2013, the pension fund’s real estate assets rose in absolute terms to DKK27bn from DKK23bn, and as a proportion of total assets to 4.3% from 4%.
From January to May 2014, however, the relative allocation has grown by 0.8 percentage points.