GERMANY - iii-Investments has been chosen to manage a new €400m closed-end pan-European real estate fund for a German pension fund.

The German fund manager said the spezialfond mandate reflected wider interest among German pension funds to capitalise on attractive property yields in Europe relative to those of government bonds.

For this reason, iii-Investments will focus on prime markets in France and Belgium, where it sees the most attractive pricing.

But Reinhard Mattern, managing director at iii, said the company was only seeing interest in new real estate investments from pension funds in Germany and not insurance companies, which were dealing with the uncertainty surrounding incoming Solvency II regulations.

"This is a big issue, and nobody knows what will be the final decision of Solvency II regarding real estate," he said.

The proposed regulations could see real estate investments become more expensive for insurance companies, as they will be required to hold more capital reserves to safeguard against losses resulting from financial market shocks.

Those German institutional investors that have been active have predominately focused on the core markets of Europe, where pricing is attractive and with which they are more familiar.

However, Mattern believes it is not necessarily a short-term trend, with adverse experiences during the downturn in markets like Asia prompting investors to limit their strategic weightings to non-European markets.

"Investors are more interested in European investments because they have seen that it is not always a good idea to have too wide an investment focus," he said.

"They will invest in Asia and in the US in the next years, but they will reduce the share.

"First of all is Europe, second is Asia with a very small share, and at the end of the agenda is the US."

iii's new mandate has been awarded by a new pension fund client, which could not be named.

The investor is looking to expand its European real estate portfolio and seeking core and core-plus assets that offer an average cash yield of 5.5% a year.
 

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