Recent fund launches reflect three separate trends. UK pension funds are seeking greater exposure to continental European real estate markets in the face of stratospheric domestic pricing. Some continental funds with a slightly higher appetite for risk looked beyond Europe to Asia - especially mature markets such as Japan and Singapore. More generally, the European appetite for retail property shows no sign of falling off.
In an indication of what may turn out to be a nascent trend among pension schemes, two named European pension funds - in addition to insurers - opted for real estate private equity.
Threadneedle's pooled property fund targeted demand among UK pension funds - and to a lesser extent, mainland European schemes - for diversified continental exposure. The fund of funds, jointly run by CB Richard Ellis targets a 10% annual return, with a top-down investment strategy.
Carl Leah of the £260m (€390m) Powys County Council pension fund, which has signalled a move out of bonds into real estate, identifies the potential for stronger returns. The scheme recently tendered for a multi-manager for a £13m European portfolio.
"We could have chosen commodities but we seemed to have missed the boat on that one," says Leah. "We're only 5% invested in real estate, but we needed to move away from bonds, which make up the 50% of the fund that isn't equities, and property was a way to chase the money a bit more. Europe was a way of diversifying again - European real estate seems to be up-and-coming at the moment."
Likewise the £860m Shropshire local authority pension fund, which recently tendered for an investment manager for its €63.7m pan-European real estate portfolio. Head of finance Graham Chidlow says the continental European market is "slightly behind" UK real estate in terms of pricing. "It offers enough diversification with low risk," he says.
As UK pension funds opt for, continental ones are looking to geographic diversification via Asia.
Fidelity at the end of February launched an Asia-Pacific property fund, pointing out the low correlation between Asian real estate and US or European. The fund includes Australian and Japanese securities.
The launch followed the announcement in February that AP3, the third Swedish buffer fund, had asked Aberdeen Property Investors to set up a €250m Asian property fund of funds. The idea is to gain broad exposure via Asian funds over four years as part of the scheme's strategy to diversify the risk in its real estate portfolio by increasing its international allocation to 50%. The fund will cap investment in riskier markets such as China.
The €200bn Dutch pension scheme ABP has invested 9% of its real estate portfolio in Asia. Portfolio manager Patrick Kanters says that, despite wide variation in the maturity of regional markets, property cycles offer "potentially favourable" timing for Asian investment.
With liquidity less of an issue for pension schemes than it is for other institutional investors, it's perhaps no surprise that European pension funds should have understood the appeal of IRUS European Retail Property Fund recently launched by Spanish group Neinver.
Finnish local government pension fund Keva and ABP, Europe's largest pension fund, were among the initial investors, with Dutch insurer Achmea. Collectively, institutions contributed €480m in equity to the target €1.4bn fund, which will acquire outlet centres (already owned by Neinver) and retail warehouses, as well as standalone retail assets.
The drivers are a combination of geographic and asset diversification, and strong returns.
Erkki Markkola, real estate chief investment officer at Finnish local government pension fund Keva, says: "We want to diversify outside Finland and unlisted property funds were the best way to do it. We don't have the global expertise to invest directly. Of course, we could invest in listed property or REITs but so far we've chosen unlisted property instead because the returns are related to those for direct investment.
"As long-term investors, we don't need liquidity," he adds. "We hold assets for 20-30 years, so liquidity is not an issue for us."
The Neinvers fund launch reflected two trends: the continuing appeal of warehousing - especially in Central European markets - and continuing pension fund faith in retail.
The warehousing theme came up again with Standard Life Investments' €13.2m acquisition of a retail warehouse in Brno, Czech Republic.
In terms of sub-sectors, shopping centres across Europe - even in the UK - continued to appeal to pension funds.
Dutch TKP Pensioen invested €52m in Standard Life's €2.8bn UK shopping centre fund as part of its broader strategy to increase its investment in prime retail.
Head of real estate Robert Jan-Tel said the fund "believed absolutely" in retail because of the potential for strong, stable - if diminishing - returns.
The appetite for retail is unlikely to abate in the short term - at least in mainland Europe. A report published by fund manager Seven Dials at the end of January suggested that keen pricing would enable continental Europe more easily to exploit Euro-zone demand.
The exception to the current pension fund appetite for shopping centres is Hermes, the BT pension fund, which in February of this year sold its 50% stake in Glasgow's specialist shopping centre Princes Square, apparently in a bid to rebalance its portfolio away from an overweight position in UK retail.
The pension fund, which co-owns the centre with insurance firm Clerical Medical, has put forward an asking price of just over €90m.