The Outstanding Industry Contribution Award, sponsored by RREEF, marks a watershed in institutional investment, as the first collaboration by major pension funds as investors in indirect property vehicles.

In early 2004, five of Denmark's largest pension funds joined forces to create the Danish Real Estate Club. Within three months, the pension funds had chosen advisers, and within six, had formalised the club's internal rules.

A year after being formed, the club made its first investment. It now has an expected annual investment rate of €350m.

The club's founder members are PKA, Pen Sam, Kommunernes, PFA Invest, and Finanssektorens Pensionskasse (FSP) which together now account for about 20% of the €60 billion of assets in the Danish pension fund marketplace.

The Danish Real Estate Club is not, however, a fund; money is not pooled for collective investments. Each pension fund continues to invest from its own coffers, although in a fully transparent environment where it can take advantage of fellow members' expertise, contacts and due diligence findings, thereby reducing costs.

Furthermore, investing as a group gives the five pension funds the kind of financial muscle normally reserved for much larger organisations.

So each can participate in purchasing large assets such as shopping centres which might otherwise be beyond their reach individually.

The size of the aggregate portfolio owned by club members means instant diversification. In particular, this means a better spread of risk when investing in small assets, such as residential properties, as the number of these properties in the portfolio is commensurately bigger. Club members say that diversifying their portfolios in this way also gives them a lower volatility than, say, property shares.

Acting as a team also means the funds can access both domestic and cross-border management expertise, especially since the club has an investment service agreement with global real estate advisors Cushman & Wakefield.

Furthermore, the pooling of information gives a multiplier effect to each pension fund's ability to pick winners. This includes local knowledge of real estate markets and taxation rules. It means that due diligence procedures can be carried out more efficiently because the different aspects - legal, tax and business - can be shared out according to the different strengths of the five pension funds.

The funds share their knowledge of local business cultures, and of negotiating practices when making offers for properties.

And their combined size gives them more influence at the negotiating table. They are often able to dictate better investment terms than when they are acting alone, and can also demand a seat on the investment committee or advisory board of the vehicle they are buying into.

Of course, the asset allocation of each fund varies. However, as an example, FSP's real estate portfolio is mainly residential, with some offices and a small amount of retail. Investments are held both directly and indirectly, and the portfolio includes property shares, funds of funds and derivatives. As a whole, FSP's allocation to real estate has risen sharply from 7% to 12% over the three years since the Danish Real Estate Club was launched.

The club is led by a committee, all members having a seat. The chairmanship and vice chairmanship rotate.

The investment process starts with strategy: within the pre-determined investment objectives, the committee carries out a market review, which in turn results in a model portfolio. The next task is to identify available stock, evaluate and recommend purchases, and carry out due diligence before the investment is actually made.

The portfolio is actively managed on a day-to-day basis through board meetings, and its performance monitored regularly.

But in spite of the participation of five separate pension funds, the time taken for specific transactions is surprisingly short.

First, information on potential investments is circulated in the form of an investment profile. This is followed within two or three weeks by a meeting of club members and advisers Cushman & Wakefield. If the club decides to go ahead with the investment, its members will formally accept, and decide the size of investment within a further two weeks.

The due diligence exercise is then carried out, but even so, the lead time between formal acceptance and execution can be as little as three months.

Although the club's original purpose was to invest in European indirect real estate vehicles, this has now broadened out into an intention to invest internationally. At present, the club collectively owns €400m of real estate investments outside Denmark. These investments are being made across western Europe in a swathe from Birmingham to Madrid.

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