Paul Spijkers, CIO of alternative investments at APG in the Netherlands; Hanna Hiidenpalo, CIO at Finland's Tapiola Mutual Pension; and Richard Balfe, chairman of the Belgian MEPs' pension fund, explain how their schemes approach real estate and infrastructure.



Paul Spijkers, CIO of alternative investments
APG, Netherlands
• Assets under management: €290bn
• Fiduciary manager of defined benefit schemes
• Number of participants: 4.5m
• Date established: 2008

"Within our real estate portfolio we are closely invested to our strategic allocation of 10%, whereas our infrastructure portfolio is still in a build-up phase.

We started our real estate portfolio in the 1980s by investing directly in buildings. But as the portfolio grew, we found that a sizeable organisation was required to manage all those properties. To an extent, management attention was focused on operating real estate objects than on anything else and it was difficult to build up a large diversified pool of assets through direct investments, which is why we decided to step away from them and invest through funds, joint ventures and co-investments instead.

We have a 50/50 strategic split between listed and unlisted securities, as over the long term the returns and risks of listed securities are comparable and it creates more liquidity in the portfolio. The exposure is global and includes emerging markets.

In 2007, we tactically underweighted our exposure because we felt property was too expensive, which turned out to be a good decision.

Our global infrastructure investments have followed the well-trodden path of other illiquid assets. We started out in 2004 by investing first in fund of funds, before progressing to investing in primary funds as our skills increased. Infrastructure is not yet as mature as the common real estate market and can still produce a significant premium as well as offer diversification effects and protection against inflation. The next step is to invest through co-investments. We expect to reach our 4% strategic target within the next three years.

The main challenge with infrastructure investments is finding the right project because the term includes so many different sectors and segments.

One of the specific risks associated with infrastructure is its illiquidity, which is why it has to fit in with the overall management view on liquidity.

Public-private partnerships in infrastructure have a very low risk profile and are therefore associated with a lower return but the return expectations of higher risk infrastructure projects can exceed 10%.

The same is true for real estate although most of our portfolio is invested in core real estate for which we target a long-term target return of 7-8%. Opportunistic real estate makes up a smaller part of the portfolio. Certain segments of the real estate market are currently overvalued. We see an increasing gap between the performance of A and B locations, but fortunately we target mostly A locations."


Hanna Hiidenpalo, CIO
Tapiola Mutual Pension, Finland
• Invested assets: €9bn
• Members: 400,000
• Defined benefit
• Funding level: 23.3%
• Established: 1982

"With regard to asset allocation and investment instruments, we are quite a typical Nordic pension investor. However, what may differentiate us from other institutional investors is our strong commitment to develop in-house analysis tools to evaluate real estate and infrastructure assets.

We have always invested in real estate but over the years our exposure to it has gradually increased. Currently investments in real estate make up about 13% of our overall asset allocation but we aim to increase that share further. In absolute terms, real estate assets have grown even more substantially and kept pace with the overall asset growth.

The majority of our real estate exposure is through direct investments in Finnish property. The nature of this asset class requires you to know the markets, operators and tenants, which is why we tend to have a strong home bias. But for asset allocation purposes we also make use of third party indirect instruments outside Finland. About one fifth of our overall real estate investments are invested abroad. However, international investments such as Real Estate Investment Trusts and Private Equity Real Estate funds (PERE) need to be justified by their diversification benefits as well as their return premium over the direct Finnish portfolio.

So far our investments in property have been successful. They have managed to return reasonably good single digit numbers over time.

Direct infrastructure has so far not played any major role in our investment universe simply due to a lack of proper opportunities, structure and instruments. But this will change as the government's opportunity to finance major projects diminishes.

Investments in infrastructure may offer a suitable opportunity for a long-term investor like us due their nature - they offer a solid cash flow stream, a favourable risk level as well as diversification benefits. We may also consider investing in fund structures for infrastructure but I am not very enthusiastic about the management structures of typical infrastructure funds.

The biggest challenge to our real estate and potential infrastructure investments is the overall economic development in Europe, the region where we have our biggest exposure. There are also still underlying distortions in the market place.

For us, it is essential to assess the underlying valuations for both new real estate and infrastructure investments."


Richard Balfe, chairman
MEPs' Pension Fund, Belgium
• Invested assets: €170m
• Members: around 1,100
• Defined benefit
• Date established: 1989
• Funding level: 65%

"We sought exposure to real estate for diversification reasons to our bond and equities mix. Half of our asset allocation consists of an MSCI-based equity portfolio, while the other half holds good quality, AA or above government as well as some corporate bonds.
Our allocation to real estate currently stands at €10m, equal to 7% of our overall portfolio.

We have always had an indirect approach to our investments in real estate - we are simply not big enough to buy any property directly.

For the last seven years we have invested with the same asset manager in a European fund, which aims to invest in supposedly high quality office blocks and commercial developments in the euro-zone.

We had quite a careful look around but in the end, because we are after all a European Parliament scheme, the feeling was that we should look for a European fund rather than a country-specific one and with the euro being the biggest currency in Europe, it had to be a euro denominated fund too.

The 10-year fund still has three years to run but it may be suggested that it be rolled over for a couple more years. However, we are neither looking to pull out prematurely nor to put any more money into the fund.

Property investments are pretty much like the tide - they come in and out. At the moment the property market is not looking that brilliant, neither in Europe nor across the Atlantic. Therefore our expectations have now been reduced to hoping that we will get our money back.

In the past, infrastructure was also on our agenda. But after undertaking some research on possible investments in infrastructure we came to the conclusion that we are probably too small a fund to hold any.

The difficulty with infrastructure is that it costs a lot of money. We could have a reasonable investment in just one country but as a European fund this is not our style.

And spreading our money across various countries through infrastructure funds would leave us with no meaningful investment. The money would be spread so thinly we would hardly know we were invested in infrastructure - it would be more like investing in a slightly different class of equities with a charge attached."

This article first appeared in the April issue of IPE magazine.