ASIA - Pension funds are increasing their exposure to Asian property in a bid to escape the US-led economic downturn.
Bo Ljunglöf, manager of Aberdeen's €100m AIPP Select fund, said European schemes, in particular, were looking to Asian property "as a good diversifier".
"It's less affected [than Europe] by the US economy. The driver is the global economy, and it's a long-term trend," he said.
"We're seeing it across all asset classes because of regional demographics and long-term macroeconomic growth. Pension funds started diversifying with Asian equities; now they're doing the same for their real estate portfolios, because the return is higher than on European property."
His comments came after an announcement last week revealing the €24bn Local Government Pensions Institution (LGPI), the Finnish public-sector pension scheme, had become the fund's largest investor. The 10-year fund promises a return of 13—17%.
To date, the fund has invested in three funds: one Japanese, one Malaysian, and one pan-Asian. Although the fund's investment strategy is relatively unrestricted, at least 60% will be invested in mature markets, including Malaysia and South Korea, though investment in emerging markets will not exceed 40%.
Ljunglöf said pension funds were looking for broader regional investment rather than investment in specific markets.
"It is no preference for one market or one economy. Of course, China and Vietnam are riskier than more mature markets but in the region as a whole the perceived regional risk is higher than the actual risk."
He also confirmed there is an emerging trend for greater regional investment from investors within the region - including sovereign wealth funds - driven by liquidity, particularly as two of the world's top five pension funds are Asian: Japan's Government Pension Investment Fund, with $936bn (€595bn) and Korea's National Pension fund, with $20bn.
"Look at China's investment authority. We'll see increased investment from within the region," said Ljunglöf. "Asia is so large, and it has such potential. There's room for everyone."