Pension funds have been increasing their exposures to real estate by targeting alternatives such as social infrastructure. Barbara Ottawa reports
Between the first quarters of 2008 and 2012, the real estate allocations of all 17 Austrian Pensionskassen increased from 1.97% to 4.04%. Of course, some of this increase is due to other asset classes falling in value. But there is a genuine increase in interest in the real estate asset class, which for a long time had only played a marginal role in Austrian Pensionskassen portfolios - and, considering the higher property exposure of pension funds in other countries, one might say it still does.
But the second-largest player on the market, Valida, has now gone public with its plan to increase its indirect real estate exposure by investing in social infrastructure.
The €3.76 Valida Pensionskasse, which more than doubled its real estate quota over the past year to 3.5%, announced it will be investing €20m in listed companies running nursing homes in Austria. The news stirred a debate on the subject among competitors.
"These investments will offer stable, highly secure returns and they are part of our social responsibility to the Austrian economy and society," says Andreas Zakostelsky, chairman of the board at the Valida group.
He expects the nursing home and public sector loan investments to yield between 4% and 5% and the building loans to add 3.25% to the performance.
Last year the largest Pensionskasse, VBV, which has a real estate exposure of between 7% and 10%, announced it was investing in a fund covering six nursing homes in Germany with a view to learning more about the sector.
It could also pave the way for investing in Austrian nursing homes, although Günther Schiendl, CIO at VBV, is still not convinced about prospects for the domestic Austrian care-home market. "While in Germany they have an established nursing home market, we only have a few -‘senior citizen residences' in Austria, which are basically five-star hotels for pensioners," he says.
Similarly, Christian Böhm, managing director at APK, which has a real estate quota of roughly 3%, confirms that his fund is invested in nursing homes in Germany but that a similar investment "would not make sense in Austria". He cites the complicated organisational structure involving communities, provinces and the federal state, and the fact that "the privately run segment in this sector is very small".
However, Zakostelsky is convinced that the privately run care sector will grow rapidly over the next few years. And Schiendl points out that while many Austrians are still counting on the state to provide for their old-age care, as they do for their pensions, this will have to change soon. This means that the VBV will continue to assess the market in Austria but that an actual investable market "still has to be established".
Figures provided by the Austrian Red Cross provide proof for the necessity of such a market: staff requirements in the care sector will increase from currently around 55,000 to almost 70,000 by 2020, including more facilities or companies running mobile care. A spokesperson for the Red Cross confirms "there is a trend all over Austria of more private operators coming into this sector".
For Böhm, alternatives to nursing homes like assisted living or senior citizen apartment-shares, might be a more interesting investment theme in the future, but he stresses that the APK "is not a charity investor". He warns that living and demographic structures are "a very complex issue", and one always has to keep in mind the operational risk and the hidden exposures that come with investments in nursing homes.
Other investments made under Valida's ‘social infrastructure' category include a loan issued by Austrian bank Kommunalkredit to an energy service provider and guaranteed by Austrian energy giant EVN, which the Pensionskasse will take over.
And the €1bn severance fund Valida Plus, which started investing in real estate only last year with a 1.9% exposure, will be investing €15m in housing loans as well as investments in housing co-operatives.
For APK, Austria is "not interesting" at the moment. Böhm is concentrating more on Europe and specific sectors. "Retail worked during the crisis because people were still spending money on everyday goods," he says. "Office is not dead per se, as demand is still there for larger connected rental space."
Bernhard Hansen, board member at CA Immo, points out that while the Viennese office market is already quite saturated, "people are looking for certified sustainable buildings with transparent operating costs". He adds: "A few years back everybody wanted offices in glass towers, now they want sustainability."
This means that old office buildings are either fully refurbished or turned into residential - a trend which, according to Hansen, will be coming to Vienna soon.
Are Austrian pension funds looking at the opportunity to move into real estate financing in their domestic market as banks retrench?
Schiendl confirms that several project developers seeking financing for deals have approached VBV, but the pension fund has had to reject them because of administrative issues.
"Project development financing might be a possibility depending on how it is structured - we remain open for different options," he says, adding that "now might be a better time for project developments because they might be valuated more realistically".
According to Franz Pöltl, head of investments at Austrian EHL real estate, insurers have not yet invested heavily in real estate financing in Austria but "they are purchasing more than they did in the past".
During 2012, Pöltl believes insurers and open real estate funds will be the main buyers in the Austrian market - but "only in the core segment or not at all" as the spread between risk-free and "a bit risky" is widening.
Traditionally, Austrian Pensionskassen have favoured indirect rather than direct real estate investments. Schiendl explains that "a fund takes care of the administration for you".
Illiquidity is another issue of which Böhm is wary when it comes to infrastructure investments, especially now that the Pensionskassen might be facing a major payout as some retirees might be allowed to make a one-off discounted tax payment on their assets.
"Infrastructure is not one of our current priorities, but it might be a possible asset class for the future - of course only after careful analysis of the subject and the investment," adds Böhm.