UK - The Imperial Tobacco pension scheme, winner of the coveted long-term performance award at the IPD/IPF UK Property Investment Awards in London, has highlighted the importance of consistency and adding value to existing assets.
William Mather, pension manager at Imperial, told IPE Real Estate: "It's hard to put one's finger on the reason for this performance, but we've had consistent policies for many years and they have brought us success."
It is the fourth consecutive year the fund has won the award, having this year delivered an additional 1.55% to its 10-year risk-adjusted return, which now averages at 10.4%. Mather said: "There is an inbuilt momentum with a 10-year award. Every year one year is added and one falls off."
The scheme's real estate allocation is currently at 11.5%, " though it varies slightly up or down", he said.
"The important thing for us is that the performance is sustainable - that we have a high level of income with long-term capital growth. Those are the two things a pension fund needs," Mather added. "But all we do at the pension fund level is allocate to property. We debate and we discuss the allocation, but we leave it up to the managers to decide."
Chris Cooper, managing director of DTZ, which manages the scheme's real estate portfolio, said: "The key thing is buying and managing the investments you're best set up to deal with. It's active management, so in the short term it can work against us. But our approach is to hold over a long timeframe, to make his assets sweat along the way, and to keep looking for value-adding opportunities. For that you need to have more feet on the street."
He predicted that in future there would be a closer focus on managing assets. "If you invest in bonds and shares, you can't influence the company to increase its dividend to you. But if you invest in property, you can improve that property, let up vacant space, and find additional forms of income from the asset," he said.
"The market is good at pricing income but not good at pricing growth potential. When the market is falling, it underprices growth and overprices risk. What we try to do is lock up growth via active management."
Other IPD award winners included the BP pension fund, for its 5.1% three-year return in the segregated pension fund above £500m (€580m) category, and the Merchant Navy Officers Pension Fund for a 3.2% three-year return in the segregated pension fund (above £100m and below £500m) category.
Nick Yeomans, managing director of Wilky Fund Management, which manages the Merchant Navy Officers Pension Fund, said the fund's performance reflected "a good year last year and an exceptional one this year".
He said the income-focused fund invested in properties "not at the primest end but not far off it - certainly not secondary in terms of income". In contrast to other pension funds, it has a heavy weighting towards industrial, because the asset sub-class offers relatively generous returns.
"During a period of modest capital growth the income component has been important," said Yeomans. "It's a mature fund and it needs to pay pensions."
In a rebalancing exercise earlier this year, the fund sold three properties for £60m - 35% above the valuation. "Knowing when to sell is important and we called the market right," he said. "Timing is the most important factor in the market."
