EUROPE - Pension funds are slashing the number of property fund managers they deal with, at the same time as increasing their allocations to an asset class they now see as core to their investment strategies.
Alex Jeffrey, chief executive of MGPA Europe, told IPE Real Estate: "Over the past three to five years there has been a recognition among institutional investors that real estate should play a bigger role in a properly balanced investment strategy.
"Allocations to property have increased across the board. The typical pension fund used to have 5-7% allocated to real estate; now it's more like 8-10%."
His comments came as the private equity property fund manager, which has US$11bn (€7bn) in assets under management and is part owned by Macquarie, announced the final closing of its MGPA Fund III with commitments of US$5.2bn.
At the same time, Jeffrey claimed large, increasingly confident institutions would consolidate their relationships with fund managers, focusing on those with asset management expertise at the expense of latecomers to the sector.
"Large pension funds could have 100 relationships with fund managers and they're finding them difficult to manage. There's a growing recognition that the old model is unworkable. It's easier to manage a smaller list of trusted relationships and it's clear that a strong track record works to the fund manager‘s advantage.
"I'm not sure I'd use the word ‘attrition' but pension funds want an active asset manager, not like in the past where anyone who bought assets - often leveraged - made money," said Jeffrey.
He said the investment appetite seen at his firm had shifted from ‘traditional' investors such as North American and European pension funds and insurance firms to encompass sovereign wealth funds, charitable foundations and university funds from Australasia and the Middle East.
This new fund comprises private equity real estate funds covering Asia, and with buying power of US$15.6bn, while in Europe funds have a buying power of €3.4bn.
For investors in the fund, Asia is "a growth play: a relatively safe haven in a volatile world", said Jeffrey.
"Europe is different. [Investors will] already have a decent exposure. In the past few months, we've been at an interesting point in the cycle, with prices falling at a greater rate than the underlying economic strength warrants."
Pricing decoupled from macro factors would increase investor interest in Europe, he also argued.