GLOBAL - Investors should step up property investments in the emerging markets in "anticipation" of the region's expected growth, the European head of real estate at the Canada Pension Plan Investment Board (CPPIB) has said.
Speaking at the IPD European Property Investment conference in Frankfurt yesterday, Wenzel Hoberg, who joined the CAD161bn (€126bn) Canadian scheme in 2007 and relocated to London 2009 when it opened its UK office, said that this growing focus on emerging markets was also one of the reasons CPPIB was increasing its exposure to real estate - currently at CAD17bn, or 10.6%, as of March this year, and up sharply from 2011 when it stood just below CAD11bn.
"What's pushing up our real estate allocation on the one hand, as you grow bigger, there are few programmes that are as scalable in the same way as real estate," he said, comparing the long-term focus required for real estate with the more short-term approach of other asset classes.
"The other important piece pushing real estate allocations up is that the global investible equity universe is going to shift to the emerging markets."
He conceded that equity investments in the region were still hampered by the issue of availability, therefore reducing the scale of any investments.
"Where can you deploy?" he asked. "You can deploy asset classes like real estate."
He said this would allow the right assets to be bought "in the perfect position today, in anticipation of what's currently [occurring] in the public markets".
Hoberg also discussed the investment risk posed by real estate, insisting that the risk was "mostly" driven by the lack of data.
"That makes us very attractive as well. On the one hand, why are we an attractive asset class? Because the perceived low risk," he said, also citing the lower volatility as one of the attractions for many investors.
He countered by saying that the more research was conducted on the asset class and the more prevalent REITs became in the industry, the more these attractions would vanish and put property on the same footing as other existing asset classes.
Briefly discussing the impact of the European Union's plans for the Solvency II directive - expected to place a 25% capital charge on insurers for holding direct real estate and widely opposed by the industry - he was critical of its impact and the uncertainty surrounding the regulation.
"They don't know what's coming, so it's really paralysing the market at the moment," he said.