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Top 25 Europe-Based Public Pension Funds Investing in Real Estate – July 2014

by Jack Jackson

  • 14 Jul 2014
  • RE

Preqin’s Real Estate Online contains profiles for 222 European public pension funds, which deploy a significant amount of capital across the real estate sector. The top 25 Europe-based public pension funds by allocation to real estate have aggregate assets under management of €938bn, and have an average allocation of 14.3% of total assets to real estate. This average allocation falls just below the average target allocation of 15.9%, which suggests that capital is likely to flow into the private real estate market from this group of investors.

In terms of strategy, the top 25 European public pension funds have a strong preference for lower-risk strategies, with 73% favouring investment in core vehicles. However, there is still significant appetite for the higher risk value added and opportunistic vehicles, with 55% and 64% of the top 25 Europe-based public pension funds expressing a preference for these strategies respectively. These investors also possess an appetite for debt and distressed vehicles, with 36% and 41% in the top 25 maintaining a preference for these strategies respectively. Geographically, there is a strong inclination for domestic investment, as 96% of the top 25 European public pension funds show a preference for Europe-focused funds. Appetite for North American and Asia-Pacific real estate is strong in this group of investors, with 63% and 58% expressing a preference for these regions respectively. Fifty-four percent of the top 25 European public pension funds maintain a preference for global funds.

Many large institutional investors are seeking greater control over their real estate investments, and are therefore turning to more specialized investment vehicles. This is reflected by the rise in appetite for real estate joint ventures, co-investment opportunities and in particular separate account structures (see Increasing Investor Appetite for Real Estate Separate Accounts – June 2014). Thirty-eight percent of the top 25 European public pension funds invest in real estate though a separate account mandate, with a further 25% considering utilizing the structure. Joint ventures are also favoured by these investors, with 42% currently using this route to market, and 40% of the top 25 Europe-based public pension funds are either currently investing or considering investing in the asset class via co-investments.

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