Pension funds show increased appetite for real estate: survey

European pension funds are displaying an increased appetite for alternative investments, including real estate, according to the results of the 2010 European Institutional Asset Management Survey (EIAMS) published by Invesco on Tuesday. The findings point to an altogether more positive sentiment among institutional investors in 2009 compared to the previous year, which has benefited riskier asset classes in particular. The focus of the survey is on small to medium-sized investors, with pension funds making up 98% of the sample.

'The survey results certainly pick up the drive to recovery and reversion to "trend" by investors as they rebalance their portfolios by reducing cash and show an increased appetite in alternatives', said Simon Redman, Head of Product Management at Invesco Real Estate. 'There is a sense of a return to normality and investors appear resolute about resuming from where they were before the traumas and dramas inflicted by the financial meltdown.'

The fact that investors are looking for higher returns again is reflected in a shift from cash to alternatives. Pension funds started to move down the liquidity scale in 2009 and diversify into alternatives such as real estate, hedge funds and private equity. The EIAMS survey indicates that this diversification process is likely to continue, which is reflected in increased positions in real estate, private equity, hedge funds and commodities.

Last year, alternatives including real estate bounced back to make up 11.7% of respondents' portfolios. 'The economic crisis dented confidence in alternatives, but European institutional investors seem to have embraced the sector once again', Redman added. 'Seemingly institutional investors are reasserting their belief in the low correlation of alternatives to the mainstream asset classes.'