DENMARK – Denmark's biggest commercial pension fund PFA Pension has revealed it will plough between €1bn and €2bn into real estate within the next five years, directing most of the new money towards international opportunities.
Michael Bruhn, the recently appointed director of PFA Pension's property arm PFA Ejendomme, told IPE: "We now have just over 5% of total assets invested in real estate, and we have the ambition to take that to somewhere between 5% and 10% over the next 3-5 years."
In absolute terms, the fund's real estate assets were worth €2.1bn at the end of 2012.
The targeted allocation would be closer to 10% than 5%, Bruhn said, but added that the precise level it reached would depend on how the fund's balance sheet developed.
"As a pension fund, we have different types of pension schemes we manage for our customers," he said.
"Those schemes that are of the older, guaranteed type have a lower allocation to real estate, but currently many of our pension schemes are transforming their basis to unit-link because this has a better chance of giving higher returns."
In 2006, PFA Pension sold off all of its residential property – 43 properties, which equated to 30% of the entire real estate portfolio.
It subsequently formulated a new strategy, where property investments were to help optimise the PFA Group's risk/return profile, providing long-term, stable returns at relatively low risk and including inflation protection.
Most of the new investment in property will be made outside Denmark, although some will be invested in the domestic market, said Bruhn, who took up his role at PFA Pension on 1 March.
At the moment, 90% of PFA Pension's property holdings are in Denmark, predominantly in direct investments, with just 10% held internationally.
International exposure right now is to the US, Asia, the Nordics and the euro-zone plus UK, said Bruhn.
The international portion is invested indirectly through four property funds, as well as directly, with the fund owning offices in central London, York and Hamburg.
"We have some opportunistic investment, and we want to increase that," Bruhn said.
"We can spend up to 100% of the strategic international allocation we have in Europe, up to 75% in US and up to 25% in Asia."
But the fund is unlikely to invest in Asia this year, he added.
"Currently, there is more low-hanging fruit in Europe and the US than there is in Asia," he said.
"The closer we are to our home turf, the more direct investment we can do," Bruhn said.
"We can do club deals, joint ventures or separate mandates where we partner up with our manager, whereas if we go to US or Asia we'll be discretionary and in indirect funds."
Meanwhile, PFA Ejendomme has announced it is planning a 55,000 square meter development in Copenhagen's North Harbour district, where the property arm has bought a large plot of land, PFA Pension announced.
The land on the Redmolen quay will be used to build primarily business properties, while 10% of the development may be residential, the fund said.
The land was sold by the government agency By & Havn (City & Port), though PFA Pension declined to say how much it cost.
Henrik Heideby, president and chief executive of PFA Pension, said: "At Redmolen, we have secured an absolutely great location in one of the capital's most attractive areas right now.
"It is a good investment that will allow us to establish distinctive commercial properties and unique homes."
The new buildings are to be split into two areas.
At the tip of Redmolen, PFA Ejendomme plans to build a 25,000 square meter office building between 44 and 54 metres high, subject to planning permission.
In the second area, around 24,000 square meters of office space may be built, spread over four buildings, it said.
In addition to this, there may be around 6,000 square meters of housing, PFA Pension said.