UK – The cost and lack of liquidity associated with real estate is impeding allocations from defined contribution (DC) pensions, but a cross-market working group could resolve the "disconnect", delegates at the IPD/IPF Property Investment Conference heard last week.
Alex Moss, managing director at Consilia Capital, said a "clearer understanding" between the DC pension industry and real estate fund sector was "of great necessity" if the asset class were to play a significant role in the burgeoning DC market.
He presented findings from 'Returning to the Core', a Pensions Institute report undertaken by Cass Business School and commissioned by the IPF, that included a recommendation for a "cross-practice working group that brings together experts in the real estate and DC auto-enrolment investment strategy".
Moss described a dichotomy highlighted in the report: "Effectively, the real estate market was saying the DC market knows what it wants but not what it needs, and the DC market countered by saying you're not really helping us, we're the customer."
A panel of speakers agreed that the issues of cost and liquidity were central to the mismatch in thinking.
Mike Luscombe, head of Aviva Linked Property Fund, said: "The cost aspect is really the key issue at the moment. You will still struggle if your fund is too expensive because the people who are actually putting the schemes together are so cost-orientated."
He the said the focus on cost had led to "a lot of situations where there is no property going in at all", but questioned whether this was adequate compensation for limiting diversification options.
Mark Russell, senior fund manager at Legal & General Investment Management, said the requirement for daily dealing was also instrumental in the breakdown in understanding.
"A lot of DC providers are saying, fundamentally, they must have daily priced daily dealing and that, if the product for real estate is not liquid, do not propose it," he said.
"If there isn't daily dealing, they will just cast it to one side because, for them, there is this big battle about getting their product and getting sufficient market share at the moment."
Andrew Smith, global head of property at Aberdeen Asset Management, posited whether attempting to resolve the issue by making real estate more liquid would be "throwing out the baby with the bath water".
He added: "If the discussion is about daily pricing and more liquid investments, then [property] simply becomes more like other forms of investment."
