The pension fund for doctors in the North Rhine-region (NAEV) has an alternative portfolio with a heavy bias to real estate diversified beyond Germany and Europe, including Asia.
The Düsseldorf-based fund, with assets of €9.8bn, has a strategic allocation of 9-13% to real estate and currently invests some 11% of assets in the sector. Hermann Aukamp, CIO of real estate, says two-thirds are invested in Germany and one-third in Asia, Europe and North America. "We began investing in Asian real estate seven years ago and have strategic target of 5-8% of the real estate portion invested in the region. We have 5% of the property portfolio invested in Asia," he says, adding that the fund might raise the allocation.
Currently the fund invests in Asia via two funds managed by Pramerica. "We used to invest in listed stocks in Asia and Australia as well, but we sold our holdings in 2008, before the Lehman-collapse," Aukamp notes.
He says the fund's exposure to equities is now at between 2-6% which is why it has decided not to reinvest in listed property stocks at the moment. "We had a very good experience with it but timing is everything. We may go back into this sector but it is yet to be decided," he says.
Aukamp says the fund route is a better way for a European pension fund to gain exposure and experience in the sector and region. "The funds we invest in are broad Asia funds, which include China, albeit a very small percentage, and focus on the main developed markets such as Korea, Hong Kong and Singapore. Japan is also included; Australia will be in the near future."
He says the risk/return ratio is attractive and has worked well for the fund, with double-digit returns in the past few years. But he cautions: "These markets are volatile and timing is crucial. It is not for every pension investor. First of all you need a certain size to make a viable investment in order to gain the benefits of diversification. There is also a lot work in-house that needs to be done, in terms of due diligence and monitoring, even if you invest via funds. It is key to know your fellow investors and managers well."
He says that for investors such as NAEV with a relatively small allocation to the region, country funds are not viable; broader funds offer exposure and enable the investors to learn about the sector and region. He adds that direct investments are equally unsuitable because of the lack of experience in the region and the size of investments.