To get the best product an investor needs the best managers; how proactive it can be depends on the resources at its disposal. Richard Lowe spoke to three pension funds with very distinct approaches
POSITION: CIO and member of the board
TOTAL ASSETS: €4.5bn
REAL ESTATE ASSETS: 5%
Multi-employer fund VBV Pensionskasse is Austria's largest pension fund by asset size, and like many other large institutional investors the challenge of meeting its desired level of real estate allocation is a huge feat. The €4.5bn fund's real estate investments account for around 5% of its total assets under management, but the aim is to increase this quota to 10% over the next three years.
Fortunately, there are a number of markets that have been identified by VBV as being appropriate for new investments going forward.
Günther Schiendl, CIO and member of the board, joined the pension fund from fellow Austrian pensionskasse APK in January, and his biggest task is finding the "right products" to access these opportunities.
One of the growing challenges is the speed with which good quality managers are able to tie down investor capital, often leaving limited time for investors to deliberate over the pros and cons of an investment opportunity. "We have witnessed a development that means you have to decide rather faster than slower or else capacity might be gone," Schiendl admits.
A potentially bigger problem is knowing where to look for the right solutions in the first place.
Actively seeking out the market itself rather than waiting for the market to come to you is essential, as far as Schiendl is concerned. To do otherwise might be to miss out on opportunities that are not highly publicised and to have to rely on standard offerings, which given today's economic backdrop are likely to lead to disappointment.
WARWICKSHIRE COUNTY COUNCIL PENSION FUND
POSITION: Group manager, treasury and pensions
TOTAL ASSETS: £1bn (€1.35bn)
REAL ESTATE ASSETS: 5%
The local authority pension fund for Warwickshire county council made its first investments outside equities and fixed income in April 2007, committing £50m (€67.3m) to hedge funds and real estate. A fund of funds route was chosen for both of the new asset classes on the advice of the scheme's investment consultants, Mercer.
As Phil Triggs, treasury and pensions group manager, explains, the decision to invest in funds of funds was to ensure the pension fund could gain immediate access to a range of specialist managers and property types, thereby ensuring "diversification" and "risk reduction".
"They are fund of funds managers, so they have access to other skilled managers," he says. "We chose on a basis of fund of funds in order to diversify and reduce the risk associated with any one particular manager.
"We did a similar thing with hedge funds, purely on the basis that we did not want to have all our eggs in one basket and we chose the fund of funds approach. It has its disadvantages, obviously, on the cost side, in terms of the fund manager fees. But we thought that was a price worth paying."
Schroder Property Investment Management and Threadneedle Property Investments were chosen to manage the real estate fund of funds for Warwickshire. "We selected both on the basis of their property selection skills and access to the best property areas and markets. We remain confident and happy with those particular managers," says Triggs.
POSITION: Managing director, global real estate
TOTAL ASSETS: €216bn
REAL ESTATE ASSETS: 9%
For Europe's largest pension fund, it is understandably important to be gaining access to the best performing managers. But for ABP it is as equally important to be "in the front row" when investing in new funds, as Patrick Kanters, managing director of global real estate at ABP Investments, explains. ABP invariably enters funds as a cornerstone investor, but still desires to be among the first investors in order to help shape terms and conditions and to bring "valuable information and knowledge to the table".
In some instances, as Kanters reveals, ABP will approach fund managers - and this is often the case with managers who are setting up their first fund - to discuss setting up a fund "which they might not usually have done before".
Of course, ABP has an advantage simply because it is already invested with a "broad range of managers". But, as Kanters notes, it is still important for the pension fund to be proactive in seeking new opportunities. ABP already has a number of real estate staff "on the ground" in Europe and US, but soon will have five people working directly within the market in Asia. Kanters says: "On the one hand, of course, we already have a mature portfolio. By that already established relationship, it enables us better to be at the forefront again.
"On the other hand, there is a lot of money chasing ideas. We try to be very proactive. We did grow our team to enable us to be more active in establishing new contacts and exploring new markets."