REAL ESTATE - Six months after it first announced it was to re-allocate half its real estate into global markets, Swedish buffer fund AP3 is reporting falling returns for the asset class because it has yet to appoint an adviser to manage the shift.

With returns on equities down in the first half, the rationale for geographic diversification to boost its outperforming real estate has become more pressing. For the first half of 2006 the €21.2bn fund returned 1.7%, down from 8.6% for the same period last year.

In contrast to domestic equities, which returned 4.2% (down from 11.7% last year), real estate returned 18.8% -- though even this represented a decline from 31.2% in 2005.

Spokeswoman Christina Kusoffsky Hillesöy would not comment on progress made in the recruitment but confirmed that an appointment was not in the offing.

Nor has the pension fund set out a timeframe for reaching its real estate allocation target of 8.5%, announced at the end of last year following a strategic review. The fund is currently 2.4% invested in real estate.

“We haven’t reached that goal yet,” said Kusoffsky Hillesöy. “It takes time to build up a portfolio.”

The pension fund announced its decision to expand 50% of its real estate allocation internationally at the end of last year. However, the plan is effectively on hold until the pension fund appoints an adviser.