REAL ESTATE - Pension funds poured more than £1bn (€1.44bn) into real estate in the first quarter of this year, according to industry data.

Deal Flow, investment publishers MandateWire’s quarterly survey of investment activity, confirmed that 12 European pension funds, including Sweden’s AP3 and ATP Ejendomme, would boost their real estate investments in 2006.

AP3 has said it would double its current exposure with an investment of £600m to meet its allocation target of 8.5%. ATP Ejendomme will increase its investment by £690m in May.

Boosts to real estate allocations in the quarter came from equities, bonds and gilts, as well as cash. Minimal outflows from real estate were mainly to equities or hedge funds.

MandateWire editor Martin Steward said: “Scandinavia has a long-standing exposure to alternative asset classes, so it has higher allocations and more expressions of interest to hedge funds.

“In the UK, pension funds move at a glacial pace. They’re tentative about hedge funds but they tend to see real estate as a sure-fire bet. They understand it. They’re comfortable with it.”

The period also saw a slight shift out of European real estate into Asian markets.

Although a data breakdown was unavailable, Steward said pension funds were looking again at Japan after a “real and substantial turnaround” in that country’s economy but agreed that China and India were largely driving the shift.

“It would surprise me if we didn’t see an increase in investments in these markets,” he said. “It’s where I’m putting my money.”

He said the major risk for investors lay in capital inflows increasing volatility.

“There’s lots of money chasing real estate in volatile markets,” he said. “The danger is that they grow quickly and investors sell-off just as quickly. It could affect investors in the next 18 months, though pension funds tend to think longer term than that.”