Investors run for home - but for some home's a big place; regulation is high on investors' minds. These are some of the findings of the latest INREV Investment Intentions Survey, as Shayla Walmsley reports

Investor behaviour has rarely been so predictable. Given a crisis, they play safe. Given fund underperformance, they look for alternative investment routes.

Hence INREV's 2011 Investment Intentions survey, which reveals investors looking at core assets and increasingly investing via joint ventures and seeded funds, rather than blind pools.

Alessandro Bronda, head of global strategy, property, at Aberdeen, said it all made "absolute sense".

Take investors' choice of vehicle. The larger the investor, the more likely they are to opt for a joint venture.

"If you have between €10-20m to invest, you won't be able to do it so it makes sense to go for a fund," says Bronda. "If you're a large investor, you could club with a fund manager. There's a place for both."

Will joint ventures become more popular? "Anything indirect you should treat with caution, including joint ventures," says Nick Duff, senior consultant at Hewitt.

"I wouldn't go down that route for our clients. Pension funds would need in-house teams or funds of funds. You need to be careful - as you do with an off-the-shelf real estate fund."

Let's go shopping
The other big trend to come out of the report, amid an overall preference for core assets, was investors' focus on single sectors in single countries.

Bronda admits to having been somewhat surprised by it because of the long-held association of diversification with lower risk. "But when investors, especially German ones, become risk averse, they tend to focus on their domestic market. In a market that size, they can get some diversification within their own country."

This does not mean European investors are necessarily charging down the Kurfürstendamm en masse in search of a property bargain. Witness the demand for French office from Dutch pension funds, which are somewhat less enthusiastic about German office.

"I wouldn't single out Germany - I'd be looking at Scandinavia and France as well. We don't tend to splice and dice across Europe," says Duff.

"You have to remember that the survey was carried out a few months ago," says Noel Manns, principal at Europa Capital. (The survey was conducted in November and December 2010.)

"It confirms what we know - that a consensus established itself at the start of the year, when the German economic news was good, that German retail was beginning to look attractive."

Manns claims he would have been surprised had the survey results been any different. But he cites as a point of interest the number of investors attracted to mezzanine debt. The driver is obvious: risk aversion. "Not equity - equity is more risky than debt and always has been. Once they've bought debt, they just have beta and no equity risk," he points out.

"In a crisis, caution is rational thinking from investors," he adds. "But occasionally they bring out something a bit different."

More of the same?
Asked to predict the results of next year's survey, Bronda and Manns agreed that there would be some shift to value-added investments, not only because of an increase in risk appetite and the promise of good returns but because there isn't that much core available in the market.

The shift is long overdue, argues Mike Clarke, senior managing director at Mesirow Financial. "There's a huge raft of capital going into a few assets and driving yields down," he says.

"I was hoping investors would recognise core as overpriced but there was no evidence of that in the results," he says - though he has on his side the finding that investors are less keen on core than fund managers think they are.

"The big pension funds I've spoken to are still keen on core allocations and they need to complete their strategies - but they're alert to the fact that it's getting pricey."

He cites the US$280bn (€206.6bn) National Pension Service of Korea (NPS)'s decision to invest US$1.2bn in opportunistic real estate. However, he suspects other investors will hesitate: opportunistic investment will remain peripheral for the next six—12 months.

There are other known unknowns in this debate - issues that are beginning to emerge and will likely reappear in next year's report. One of them is regulation. Almost 90% of investors said regulation was at the forefront of their minds and more than 50% expected that it would have an impact on their investment activity. However, only funds of funds saw it as a reason not to invest.

"Investors have half an eye to regulation - but they're looking at regulations on valuation, and administration and governance," says Duff. "Managers should be adopting best practice. If they're not, we won't invest in them. With some, we've been successful getting them to move on a step. But we've come across a few who still need to get up to speed."