ATP is on the hunt for new high-quality real estate investments in Denmark and northern Europe and aims to increase its current property allocation of DKK30bn (€4bn).
The DKK600bn statutory pension fund is for now steering clear of new investments in index-linked bonds due to market pricing and sees real estate as good investment class for maintaining buying power.
ATP chief investment officer Henrik Gade Jepsen said although the fund is interested in high-quality real estate, it was yet to allocate a specific amount. Jepsen said more investment would increase ATP’s current allocation of approximately DKK30bn, but added that ATP has no specific target in mind. How investment proceeds would, he added, depend entirely on investment opportunities.
ATP’s search is mainly geared towards direct investments in Denmark and northern Europe. Jepsen said it was impossible to say exactly how much new investment money ATP would put into real estate, adding: “It very much depends on price, quality and location. We are primarily interested in high-quality real estate with strong tenants on long leases.”
ATP expects real estate to yield attractive real returns without adding significant risk to its overall investment portfolio. Jepsen said that across other asset classes, investors are now facing a period of low prospective returns.
“But there are real estate investment opportunities that are quite attractive, especially compared with index-linked bonds,” Jepsen added.
ATP reportedly sold a DKK90bn portfolio of index-linked bonds back in 2012.
Jepsen said: “We will buy index-linked bonds again when we find them attractive on an absolute basis and relative to other inflation investments.”
Earlier this month, a partnership in which ATP has a 90% share paid €475m for the North Galaxy office property in Brussels, let on a long-term lease to the Belgian Ministry of Finance.
“Investments like our recent transaction in Brussels match ATP’s wish for long and stable cash flows from well-located properties with low risk,” Jepsen said. “As a pension company, we like these inflation-adjusted cash-flows from prime real estate because they maintain the purchasing power of the pension savings.”
ATP has increased its allocation to real estate to 5.1% of total assets from 4% at the end of 2012, with the pace of expansion rising in recent months.
Last year, the pension fund’s real estate assets rose in absolute terms to DKK27bn from DKK23bn, and as a proportion of total assets to 4.3% from 4%. From January to May 2014, the relative allocation has grown by 0.8 percentage points.