Schroders has shifted its own £500m (€733m) pension fund towards UK commercial real estate - with investment head Alan Brown slamming the "transparently wrong" assumptions underpinning asset/liability modelling.

In a presentation, Brown told institutional investors that several factors make real estate - which will soon account for 10% of the fund - a credible asset for funding pensions.

Chief among them was the fact it isn't easily substituted. "If you want an office in the UK, you can't substitute one in Asia," he said.

Investors can manage depreciation with refurbishment programmes to protect value. In addition, yield relationships are related to yields in the wider economy. Finally, he said, "in a crowded island it is difficult not to believe that that real estate will not continue to be an asset in demand".

He added that the upwards-only nature of rent reviews is a "highly valuable attribute".

At the same time, Brown took shots at the assumptions underpinning asset/liability modelling, including an assumption that investors' risk appetite remains static regardless of changes in wealth and risk premiums.

Yet he pointed out that a 10% allocation might not be an appropriate target for other corporate pension funds if they did not have the firm's exposure to equity markets. "In rising markets our business tends to do well, and vice versa," he said.

"We did not therefore want to risk double jeopardy, and for that reason our weight to alternative assets is perhaps somewhat higher than we would have recommended for a company operating in another business."

In a bid to match its long-term liabilities with income-producing investments, the fund will attempt to minimise the cost of funding the plan, which is closed to new members, and mitigate the impact of a bear market on the fund's funding ratio.