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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: dalroi who wrote (97744)	1/13/2013 2:32:12 AM
From: elmatador	Respond to of 218255

Direct investment in real estate markets by pension funds and property sovereign wealth funds is set to double over the next decade ... findings follow a recent JPMorgan Asset Management study which found that 43 per cent of institutional investors were experimenting with real assets. The study, conducted last year, surveyed 2,500 institutional investors with assets of $7.8tn. ... investment flows thus far have been concentrated in three cities, London, New York and Hong Kong, prompting concerns that a pricing bubble is forming in the “super prime” office and retail properties that are widely desired by pension funds and SWFs as a match for their long-term liabilities. ... value of investment grade property trading could increase from around $450bn a year currently to more than $1tn a year by 2030, with the value of the total commercial property market rising from $36tn to $92tn, based on forecasts from Pramerica, the property investment and advisory arm of Prudential Financial. Pension funds drawn to property By Chris Flood Direct investment in real estate markets by pension funds and property sovereign wealth funds is set to double over the next decade, according to Jones Lang LaSalle, the property consultancy. The findings follow a recent JPMorgan Asset Management study which found that 43 per cent of institutional investors were experimenting with real assets. The study, conducted last year, surveyed 2,500 institutional investors with assets of $7.8tn. David Green-Morgan, global capital markets research director for JLL, says it is aware of a growing number of pension funds and SWFs that are considering making allocations to real estate for the first time. Investment flows thus far have been concentrated in three cities, London, New York and Hong Kong, prompting concerns that a pricing bubble is forming in the “super prime” office and retail properties that are widely desired by pension funds and SWFs as a match for their long-term liabilities. “Even in those countries where the broader economic outlook is challenging, the sheer weight of investor interest in ‘blue-chip’ or ‘super prime’ properties is continuing to push values up and there is a danger that yields will compress to uncompetitive levels,” says Mr Green-Morgan. JLL cautions that pricing pressures in the leading cities are unlikely to abate, with pension funds in emerging markets becoming much more active in global property to find a safe home for their expanding pools of domestic savings. These players also tend to make higher allocations to real estate (10 to 15 per cent of their assets) than their peers from developed markets (5 to 10 per cent). Recent deals suggest that some of the pension and sovereign wealth funds that are already active in property markets are starting to shift their focus from prime real estate. Norway’s oil wealth fund, which bought Credit Suisse’s headquarters in Zurich for SFr1bn in November, recently said that it would target industrial properties in Europe, marking a departure from its previous strategy. Norges Bank Investment Management currently has around 0.3 per cent of its assets in real estate but it is struggling to reach its target of 5 per cent. The world’s largest sovereign wealth fund also plans to invest about $11bn in the US real estate market as its seeks to broaden its property portfolio. The Canada Pension Plan Investment Board has also announced in December that it plans to expand its retail property portfolio in Europe after partnering with Citycon, a Nordic real estate company, to buy Kista Galleria, one of the largest shopping centres in Stockholm, for SKr4.6bn ($700m). CPPIB manages a total of C$170.1bn ($172.4bn), of which C$18bn is invested in real estate, mainly in shopping centres spread across the world. This includes the Westfield complex in Stratford next to the UK’s Olympic Village. In October, CPPIB spent C$445m to acquire a share of two shopping centres in Australia and it has also allocated US$800m to invest in logistics and industrial properties in the US and China in partnership with Goodman Group, a private Australian property company. These deals are the leading edge of a structural shift by institutional investors away from their traditional holdings of stocks and bonds into “real” assets such as property, infrastructure, natural resources and transport, according to JPMorgan Asset Management. It analysed more than 2,500 institutional investors last year with assets of $7.8tn and found that only 14 per cent were invested solely in stocks and bonds, while 43 per cent were experimenting with real assets and a further 36 per cent were engaged with substantial allocations. JPMorgan argues that real assets such as property provide “all weather” protection for pension funds by delivering better returns than bonds in higher growth environments while also proving more defensive than equities in lower growth periods. Douglas Crawshaw, senior investment consultant at Towers Watson, says pension funds have four main routes when considering how to gain exposure to real estate. “Pension funds can invest in property via public equity markets in vehicles such as Reits [real estate investment trusts], or through public debt in instruments such as CMBS (bonds backed by a pool of loans on commercial real estate). They can also gain an exposure via unlisted funds and private equity or they can lend directly to property companies.” Many pension funds have historically favoured investing in real estate via unlisted property funds or through pooled funds but this means that trustees do not have full control over their investments. Mr Crawshaw says that the chosen investment route usually depended on the type of pension fund. So mature DB schemes tended to look for property investments that would provide secure long-term income while a less mature DB scheme could consider more illiquid investment opportunities or opportunistic real estate funds that required a greater appetite for risk but which could also deliver higher returns. The relatively illiquid nature of most real estate assets poses a particular challenge for DC pension funds which often carry daily liquidity requirements. However, there are an increasing number of real estate funds that comply with the liquidity requirements of DC pension funds. Mr Crawshaw says that Towers Watson expects to see pension funds shifting into the next tier of real estate down from prime property because of valuations. “Real estate that is classified as ‘good secondary’ provides an attractive long-term investment for pension funds, particularly if they are able to negotiate rent increases with tenants or extensions to existing leases.” Mr Green-Morgan notes that property disposals by governments to raise capital to reduce their deficits should lead to a significant expansion in the tradeable real estate investment market. JLL estimates that the value of investment grade property trading could increase from around $450bn a year currently to more than $1tn a year by 2030, with the value of the total commercial property market rising from $36tn to $92tn, based on forecasts from Pramerica, the property investment and advisory arm of Prudential Financial. Copyright The Financial Times Limited 2013. You may share using our article