Elo, the newly launched €18.5bn mutual pension insurer, will use future premiums to diversify its real estate investments away from the domestic Finnish market, its head of real estate has said.
Timo Stenius, head of Pension Fennia’s real estate division prior to the merger with LocalTapiola at the beginning of the year, said the mutual’s larger size would now allow it to make its risk management processes “more profound and efficient”.
Speaking to IP Real Estate, he said the larger number of staff would allow Elo to explore global investment opportunities, and that this was an area he would be exploring for its real estate portfolio.
“Elo’s portfolio is still very domestic, as we have 90% of the assets in Finland,” he said. “Therefore, we shall look closely at global investment opportunities and try to increase foreign investments using our future inflows.”
However, he added that he was largely happy with the mutual’s current allocation to real estate, accounting for 15% of assets.
“This year, we will probably make only very small changes and, as we find the prime sector pricing high, we are in no hurry to make larger new investments,” he said.
Stenius said Elo currently had a small exposure to real assets, such as infrastructure, and that it would seek to grow the portfolio gradually.
But he noted that the provider’s board had yet to decide on what its target allocation to the asset class would be.
Asked about the reason for Fennia’s pre-merger 16.3% return from its property portfolio last year – above its 9.4% overall return for 2013 – he said it was a reflection of the demand for residential properties, regional shopping malls and office space in central business districts, where Fennia largely invested.
“Together with low vacancy and steady cash flow, the appreciation of these properties gave us very good returns for the year,” he said.
“On the other hand, the values of the rest of our office portfolio continued dropping. This shows how two-directional the real estate investment market is at the moment.”
At the end of June last year, Fennia had €980m in direct real estate holdings and a further €222m invested in real estate funds and joint ventures, accounting for a total of 15% of its portfolio.
LocalTapiola, meanwhile, had a similar direct and fund investment split in its portfolio, but with around one-fifth of all capital invested in real estate.