From next year property industry associations in Asia and Europe will begin recruiting pension fund members. But why should they join? Shayla Walmsley reports
APREA's decision to set up a category of membership specifically for pension funds is the latest in a series of property association initiatives to draw pension funds into the fold.
The association is not the first to target institutional investors. NAREIT pioneered investor outreach to pension funds including US schemes CalPERS and CalSTRS, although it has yet to develop a specific membership category for them. In Europe, EPRA is working on a schedule of national events for pension funds next year and will begin formally to encourage pension fund membership, at a discounted rate, in Q1.
"To create a network that includes property companies, professional investment managers, consultants and pension funds makes a huge amount of sense," says EPRA research director Fraser Hughes. Perhaps the question is less why these associations have offered new membership categories or at least outreach to investors, but why investors would be interested. Yet both APREA and EPRA say pension funds, rather than the associations, have driven the move. So why now?
Two things are clear about Asian pension funds. First, they're getting bigger. According to Watson Wyatt, they outstripped Europeans' total assets under management (AUM) in 2008, with schemes in Taiwan, Singapore and Malaysia ranking among the global top 20. Second, they're conservative.
Yet property appears to promise more stability these days than other asset classes, and less risk than alternative alternatives. "At the moment we're seeing a lot of pension funds coming back to the REIT market because they're seeing volatility in equity markets starting to emerge," says Stewart LaBrooy, CEO of Axis-REIT Managers, a Malaysian REIT. "They're diversifying their portfolios into less risky assets... I think there is a possibility that there will be permanent larger allocations to the REIT market for a yield- driven instrument. I think it will be a longer-term allocation. Apart from commodity markets strengthening, equity markets are still very fragile."
Research is what seems to have propelled pension funds to seek membership. In the wider context, says APREA CEO Peter Mitchell, particularly as a result of the financial crisis, investors are looking for forums to gather and discuss issues, and sources of information. APREA has three programmes underway covering Asian real estate markets and the investor universe, a study of Asian pension funds, and corporate governance in Asian listed real estate vehicles. A purely investor-focused regional conference, intended to be APREA's second annual regional event, is planned for 2010.
Just as pension funds have been driven to associations by the need for information, the kind of information they want differs from that sought by industry members. "At the moment it's about the information we provide about the market," says Hughes. "Pension funds want to understand the listed sector, the fundamentals and it how it performs."
If the investor-oriented trajectory is the same for all three associations, the target constituencies vary significantly. Although it is too early to forecast estimates of take-up, says Mitchell, there has been immediate interest in APREA's initiative from Australian superannuation funds, and forecast interest from US plan sponsors and endowment funds.
What EPRA plans to do is to set up an investor category to attract a broad range - from APG with its dedicated real estate team to pension funds with a couple of portfolio managers handling the whole portfolio. "We expect interest from small and medium-sized pension funds in addition to the larger funds," says Hughes.
Whereas in the past EPRA has dealt primarily with large pension funds in Europe and the US, Hughes says interest is coming now from the Middle East and Asia. "I like to think we can attract interest from a broad range of countries, in North America, Europe and Asia. These do not necessarily have to be the largest ones. We want a broad base of pension fund members in terms of country and size," he says.
"Even a total real estate allocation of 5%, with a portion being earmarked for listed real estate would have a big impact. There are still pension funds with little or no exposure."
Asian pension funds contacted were cagey about their interest in industry membership. But in EPRA's case there is little expectation that it will be inundated with new applications overnight.
"I don't expect 50 pension funds to roll up overnight - although that would be nice," Hughes says. "It is a medium- to long-term project that involves time and resource in terms of education, research and outreach. It is a matter of building trust in the platform, network and information we offer. I expect it to be a long and interesting experience."