Institutional investors eye shift to real estate: Invesco

Real estate is one of the key beneficiaries of a major shift in asset allocation preferences among European institutional investors recorded by the 2009 European Institutional Asset Management Survey (EIAMS). The annual survey is now in its ninth year and has been supported by investment manager Invesco throughout this period.

Amid the general search for safe havens, the EIAMS 2009 indicates a distinct shift away from both equities and alternative assets like hedge funds and private equity. Aside from cash, which has massively expanded its share of investors’ portfolios, fixed income and real estate seem to be the big winners. The EIAMS 2009 also highlights a distinct European bias in asset allocation among European institutional investors. All the while, investment horizons are being reconsidered for internal assets, in particular, as investors struggle to rebuild their asset values.

'As the dust from the market turmoil settles, we are getting a clearer picture of how European pension and other institutional portfolios are positioned,' says Simon Redman, Head of Product Management at Invesco Real Estate. 'All funds had to bow before the gales that howled through the markets and the resulting allocations may have had less to do with investors’ own prescience and desires than the enforced allocation of the marketplace.'

At 5% of portfolios, the overall real estate allocation recorded by the EIAMS 2009 remained unchanged from a year earlier. However, investors’ forward-looking statements point to large net increases in allocations to real estate, which stand in stark contrast to the otherwise halted rise of alternative assets. Ranking just behind fixed income, real estate is now regarded as one of the main prospective drivers for absolute returns, with a total 15% of investors, including both larger and smaller investors, looking for absolute returns from real estate. While real estate investments were previously most popular with Swiss (16%), UK and Irish investors (8%), interest among Benelux (from 8% in 2007 to 9% in 2008) and particularly French investors (from 2% in 2007 to 4% in 2008) has also picked up over the past year.

According to Redman, the growing interest in real estate reflects the general survey finding that investors are looking for less volatile, more stable and more defensive investments in a crisis and post-crisis environment.

The EIAMS 2009, conducted for the second time in partnership with Investment & Pensions Europe (IPE), covered 117 European investors with combined assets under management of EUR 477 bn. Pension funds make up 80% of the respondents, with the small and medium-sized funds (with less than EUR 5 bn in assets under management) representing 82% of the total number of respondents.