Europe-Based Public Pension Funds Investing in Real Estate

by Farhaz Miah

  • 08 Aug 2012
  • RE

Europe-based public pension funds constitute an important investor segment active in the real estate arena. The aggregate total assets under management (AUM) of these funds are approximately $1.6tn, with the average real estate allocation amounting to 10%, below the average target allocation of 11.4%. The substantial assets under management held by European public pension funds, combined with a difference of 1.4 percentage points between target and actual allocations, results in a potential pool of $23bn to draw on for investments, suggesting that Europe-based public pension funds will continue to be an important source of capital for real estate fund managers.

Twenty-two percent of public sector pension funds located in Europe that are investing in real estate have AUM of less than $1bn, with 62% managing total assets between $1bn and $9.9bn. Fifteen percent have total assets between $10-49.9bn, while 2% have total assets exceeding $50bn.

Fifty-five percent of Europe-based public sector pension funds have overall allocations to real estate of less than $250mn. Sixteen percent allocate between $250mn and $499mn to the real estate asset class, while a further 15% have investments ranging between $500mn and $999mn. A sizeable 13% have between $1bn and $4.9bn allocated to real estate, while 2% of public sector pension funds have investments of $5bn and above.

Core is the most favoured private real estate fund strategy for European public pension funds, with 89% targeting this method. Forty-eight percent have a preference for value added vehicles, with a further 45% preferring core-plus strategies. Opportunistic fund investments are attractive to 40% of pension funds, with the fund of funds route favoured by 37%. Fourteen percent target distressed fund strategies, with debt and secondaries considered by 11% and 7% of Europe-based pension funds respectively.

Eighty-five percent of Europe-based public pension funds gain exposure to real estate through private real estate funds (either through to closed-end real estate vehicles or to open-ended funds.) A notable 48% invest directly, while 18% invest in listed real estate assets such as real estate investment trusts (REITs), which enable investors to access the real estate asset class with a greater degree of liquidity.

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