UK - Pension funds in the UK should significantly restructure their real estate portfolios and end their fixation with benchmarking, according to St Bride's Managers.

The start-up firm, recently launched by former ING Real Estate Investment Management UK chief executive Robert Houston, recommends allocating one-third of pension funds' property exposure to London, one-third to global markets and the remainder to the UK regions.

The fund manager also argues the case for a 0-15% overlay of listed real estate securities and derivatives, and a 15-20% overlay of UK residential investment.

In a series of presentations in London last week, Houston conceded that such a portfolio was "radically different from most current institutional weightings" and that the "significant surgery" would probably prove too challenging for pension fund investment committees.

But he said that, if one pension fund made the move, others might follow.

Most UK pension funds are heavily weighted toward regional markets in their country, with a smaller exposure to London - global and residential investments invariably make up an even smaller proportion of exposure, if they do at all.

Houston said there was a need for a "fresh look" at how portfolios were constructed if the asset class was to retain its position in the multi-asset mix.

But he admitted this could only be achieved if the four main pension investment consultancies could be convinced.

Houston bemoaned the fact that none of the consultants invited to the briefings - held on two consecutive mornings - had agreed to attend.

In the audience was Ian Whittock, CIO at ING REIM UK. The former colleague of Houston warned that consultants operate in such a way that they have to be able to measure performance, and so would find it difficult to support such strategies.

Houston agreed, but said investors were blinded by the established wisdom to follow benchmarks.

He called on the real estate fund management industry to help guide pension funds away from this misguided approach.

St Bride's Managers has produced a list of what it deems to be the world's top 20 cities for institutional investors - looking at, among other things, transparency and economic drivers - with London coming in at number one.

With this in mind, the fund manager argues that London should make up one-third of UK-based pension funds' property portfolios. It estimates that 80-90% of portfolios are currently invested in UK regional markets.

Perhaps more controversial is the recommendation to increase UK pension fund's marginal exposure to global property markets to a similar weighting of one-third.

St Bride's Managers also argues for a 15-20% exposure to the UK residential sector, although the firm has widened its definition of residential to include retirement homes, student housing and a number of 'cradle to grave' assets, such as hospitals, hotels and even prisons and crematoriums.

It also recommends blending direct real estate with listed property securities - focusing on stocks with underlying assets in St Bride's Managers' top 20 cities - for an enhanced performance with lower volatility over the long term.