NETHERLANDS - BPF Bouw, the €24.2bn pension fund for the Dutch building industry, plans to increase the size of its global indirect real estate portfolio but in doing so will aim for a greater weighting to European markets and core investments with little or no leverage.

The pension fund has a 25% allocation to real estate, three-quarters of which is invested directly in the Netherlands, and the balance is invested internationally through joint ventures, club deals and commingled funds.

BPF Bouw has taken the decision to increase the global indirect portion of its total real estate exposure to 40%, from a current level of approximately 26%, and within that bracket has increased its exposure to the European markets, including the UK, from 40% to 50%.

The relative target exposure to both the US and what the pension fund terms ‘new markets' - effectively Asia and Latin America - has been adjusted to enable this, from 40% to 35% and from 20% to 15%, respectively.

"There is a relative shift to closer to home, to Europe and the known markets," said Jeroen Winkelman, portfolio manager of European indirect investments at BPF Bouwinvest, the real estate investment manager for the pension fund.

"These markets are likely to offer a good risk-return ratio in order to hedge our liabilities and avoid high currency risks."

BPF Bouw currently invests approximately 50% of its indirect capital in core funds, with the balance split evenly between value-added and opportunistic vehicles.

However, this arrangement may well have to be adjusted following BPF Bouwinvest's decision to change its in-house definitions of fund styles, which are now more conservative than INREV in relation to gearing levels.

For example, funds previously defined as core with leverage close to 50% will no longer be regarded as core and will move up the risk spectrum to value-add.

Winkelman explained that nearly all of the core funds in which BPF Bouw is invested are now considered value-added under internal definitions.

"We redefined core and value-added and opportunistic, because in the Dutch market we work without leverage," he said.

"If you look at it, technically we only have a few funds that are really core, according to our own definitions."

When BPF Bouwinvest looks for new investments in the future it will focus predominantly on core, income producing funds with "low or no gearing", and is likely to encourage fund managers to reduce their leverage levels in new core vehicles.

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