UK - The £2bn (€2.12bn) Avon Pension Fund, administered by Bath and North East Somerset Council, has appointed Schroders to manage a £90m UK property multi-manager mandate.
Over the next 12-18 months, Schroders will look to increase the pension fund's exposure to the UK property market via a mixture of core, value-added, opportunistic property funds and blind funds - funds that have no assets in them but in which investors put their money into to be distributed by the manager.
Jenny Buck, head of property multi-manager at Schroders, said: "Some of the investments we will make for Avon will be in blind funds. We still feel there is a bit of a mismatch between the price at which assets can be bought at in the market and the price at which properties are valued. In some instances there is a 10-15% [mismatch]."
Schroders did not specify what property types it will consider investing on behalf of the pension fund but insisted it would target property at attractive prices.
"For the next 12-18 months, we believe there will be more opportunities in the UK to create value through wise stock selection, taking into account price, property characteristics, strength of the fund manager fund structure and gearing rather than a big call on sectors," said Buck.
She believes pension funds looking to invest in real estate now should strongly consider investing in the UK, as this is the market which has corrected most so far, however she believes persuading pension funds to re-enter the market may prove challenging.
"On the real estate side of things a couple of issues being discussed at the moment are liquidity and the use of leverage. I suspect some pension funds had not quite fully understood how much leverage was involved in some of real estate funds in the market," Buck told IPE Real Estate.
"I think one of the biggest challenges for pension fund trustees will be to have the confidence to come back into the market at the right time," she added.
Buck insisted good communication between fund managers and pension funds is crucial to explain why the market has fallen so sharply and why it is a good time to re-enter the market and tap into bargains.
"There are increasing opportunities in the real estate markets. So if you have not got any real estate allocation, we think now is a good time to be re-looking at the sector. For somebody like Avon who has just made an allocation to property and has cash to invest, it's a great opportunity to create a diversified portfolio of prime assets at prices that we have not seen for a long time," she said.
Outside the UK, countries offering potential for institutional investors include the Nordic region, France, Germany and Australia, according to Buck, as well as arguing investors will be looking at mature and transparent markets rather than emerging markets like Russia and Turkey.
"As a result I would expect [interest in] markets like China and India to slow down a bit because people don't need to go there to get the risk adjusted returns that they are targeting," said Buck.
Buck expects Schroders' pension fund clients to focus primarily on the UK markets, and once other markets begin to correct, expects investors to consider Asia and the United States.
Schroders has been building up its multi-management capabilities in anticipation of investors' growing appetite for global exposure and last year established new teams in the US and Hong King.
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