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Cypriot fund re-enters real estate market, invests in infrastructure

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CYPRUS - The largest pension fund in Cyprus is to re-enter the real estate market and diversify into infrastructure and funds of hedge funds, the scheme's general manager has told IP Real Estate.

Marinos Gialeli of the €270m Hotel Employees Provident Fund - winner of the Best Pension Fund in a Small Country at yesterday's IPE Awards in Brussels - said trustees were currently considering a number of options, with both direct property holdings globally and in Cyprus under consideration.

He added that the investment, the scheme's first property deal since the 1990s, would double its exposure to the asset class to 15%, with around €25m earmarked for the purchase.

In an effort to diversify further, it has also reduced its equity investments by 5 percentage points and allocated the assets to a fund of hedge funds and an infrastructure fund.

Discussing the infrastructure investment with IP Real Estate, Gialeli said: "Together with Aon Hewitt, we feel we can invest in infrastructure. Eventually, we shall allocate 6% or 7% to the portfolio."

He added that he did not view infrastructure as an illiquid asset, as the fund holdings  could be liquidated within a month.

Anastasia Anastassiades, senior consultant at Aon Hewitt in Cyprus, noted that the pooled-vehicle approach for both new asset classes seemed the "most appropriate" for a scheme the size of Hotel Employees.

"Although the preference is to access infrastructure through closed-end, limited partnership vehicles, listed infrastructure funds are desirable for liquidity and quicker access to the asset class," she said.

Anastassiades said she expected most governments would "at best" be able to fund half of the infrastructure projects needed in future, due to underinvestment as countries tried to reduce their debt burden.

Discussing the fund of hedge funds allocation, she noted that it was the best way for the scheme to diversify, even if it came at a slightly higher cost.

"In terms of hedge funds, we have seen their ability to reduce volatility of returns in downward markets with access to strategies not previously available to trustees through mainstream classes," she said.

"This asset class can help stabilise year-on-year returns, which is important for the fund that allocates annual returns to members year on year."

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