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UK pension funds pursue renewed property market

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UK - Commercial property is finding renewed favour with UK pension funds thanks to a predicted rebound in the market.

The £622m (€712m) London Borough of Camden pension fund and the £628m Highland County Council scheme are both moving some of their assets out of equities in favour of real estate, as officials believe the asset class will bolster flagging portfolios over the long-term.

Highland's investment consultant Hymans Robertson noted the local authority's portfolio was underweight in property investments, and said it was "an opportune time to invest in commercial property which could potentially produce excellent returns".

The Scottish local authority pension fund is overweight equities and will redirect 1% of its stock market investments into commercial real estate.

Also under advice from Hymans Robertson, the Camden pension fund will move to a 10% property allocation, shifting assets out of global equity mandates run by Aberdeen and Fidelity.

The restructuring will see Camden's incumbent property managers Schroders and UBS invited to retender for a new mandate which will be divided over a series of strategies including a single manager pooled UK property fund, and segregated global and UK fund of funds.

Jim Ricketts, interim head of treasury at Camden, told IPE: "Global equities have enjoyed high returns relative to other assets and consequently cash will be withdrawn from this asset class. It is not as such a strategic decision to move out of global equities into property."

He added: "The property search provides scope to either retain or replace the existing property arrangements."

Investment manager T Rowe Price believes the prospects for commercial real estate look promising for 2010, and said the correlation benefits of property investment should return this year.

David Lee, manager of the T Rowe Price Real Estate Strategy and Global Real Estate Strategy funds, said: "The financial crisis, at least temporarily, erased one of the traditional benefits of listed real estate: relatively low correlations among regional markets and with other asset classes, particularly global bonds. But the longer-term correlation case remains intact, and is supported by the fact that real estate is inherently a local business."

Lee said the major developed markets proffer strong institutional-grade properties which were capable of absorbing "significant amounts of wealth".

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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  • QN-2546

    Asset class: Real Estate Equity Fund (non listed).
    Asset region: Europe.
    Size: Total CHF 600m, approx. CHF 100-300m per fund investment.
    Closing date: 2019-06-28.

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