UK - Russell Investments has highlighted a growing demand for property products more in line with the needs of defined contribution (DC) pension funds.

Speaking at the IPD/IPF Property Investment Conference in Brighton, Norbert Fullerton, head of EMEA consulting and advisory, also dismissed the claim that property investments were a good match for pension scheme liabilities and called on the property industry to understand and speak in the same language as trustee boards.

Fullerton, who joined Russell earlier this year from Towers Watson, insisted the "big issue" for DC schemes was finding a property product that was simple, low cost and allowed for daily pricing.

"There is still a need for a lot more effective DC-type property products," he told delegates, insisting that the growth markets would in future be alternative asset classes in favour of traditional assets.

"There are lots of opportunities for longer dated, longer duration property income products - with secure leases and long rents a whole lot more attractive," he said of defined benefit (DB) funds investment needs, noting that the "wish list" for DC schemes was similarly long, ranging from long-dated, income-generating assets through to inflation-linked solutions with stable cash flows.

He also dismissed the notion that property investments were a good liability match for schemes, recalling numerous times when fund fact sheets cited the link as a reason to invest when they "don't really" match.

However, Fullerton said it was important for the property industry to understand the needs of trustees, and that it was vital for both parties to speak the same language.

"A lot of issues that DB pension funds are facing are not necessarily related to property investments," he said.

"If the property manager doesn't know what pension funds and trustees are thinking about and talking about - the issues they are tackling - then they can't actually speak credibly to trustees."

He said it played into the industry's hand that everyone had a view on property, while many shied away from what he deemed the more "esoteric" products.

Fullerton insisted that a plain vanilla vehicle was the best approach to take, unless dealing with more sophisticated trustees.

Asked about the problems posed by trustee boards staffed by investment laymen, he acknowledged that the issue was frustrating for him as well, with many of these boards are sitting on multi-billion investments, and "don't have a clue what they are doing".

He said it was the job of consultants, advisers, scheme actuaries and the fund management industry to build the relevant relationships with trustees and scheme sponsors, thereby guaranteeing their needs were understood, but also to guarantee the industry could design solutions to fit schemes' needs.

Topics