| Pooled Property 101 |
|
|
| 04/02/2007 | |
|
Geert de Nekker, director of Cordares Real Estate in Holland, answers this week's question on pooled property. 1. What is a pooled property fund? How could pension funds invest in them? A pooled property fund is an unlisted property fund managed by a specialised and dedicated fund manager. These vehicles are normally funded by pension funds and other institutional investors and have often a limited lifetime. These funds are invested into direct properties, which are mostly located abroad and have a predetermined investment strategy. The fund manager has local presence and local expertise. Pooled property funds are launched by fund management companies and have a relatively complex fiscal and legal structure which differ from fund to fund. The structures are not suitable for all pension funds. 2. What are the expected returns and risks of a pooled property fund? Most unlisted property funds are leveraged. That is one of the reasons why these funds have higher returns than direct property investments, but they also carry higher (interest rate) risk. Property funds also face foreign property market and property specific risks. On the other hand, international property investments can be a great risk diversifier. The returns of unlisted property funds tend to range between the returns of direct property and those of equities. 3. How widely used is it in institutional portfolios? What is the objective of such a strategy? Real estate investments are very popular among pension fund nowadays. According to ALM studies property on average has a 10%-15% weighting of a portfolio. Bearing in mind that most pension funds have a lower property allocation (some had no property allocation until recently), quite a lot of pension fund money is now flowing into the property market. Regarding their property investment strategy, most pension funds pursue an international and indirect approach by investing in unlisted international property funds, which satisfies their diversification needs. The returns of unlisted property funds are highly correlated to those of direct property. Unlisted property funds are therefore, for nearly every pension fund, a great diversifier. Pooled property funds are a relatively new asset class. Long term performance figures are therefore not available. In the last 5 years the performance of unlisted property funds has varied between 8% - 20%. |
|
Articles of the same Serie : 101 |
|
© Copyright 2008 bfinance. This document is for your personal non-commercial use. Any further copying, reproduction, distribution is strictly prohibited. To obtain permission please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it