NORDICS - Nearly two-thirds of pension funds in Norway, Sweden and Denmark intend to invest in non-listed real estate in the future, according to a survey by Lymos BV Real Estate Capital Advisors.
The study found, on average, these funds plan to increase investments in this area by 12% in the next five years and on a global basis.
"Recent years have seen tremendous changes in real estate assets held by pension funds," said Mariette Meulman, managing director at Lymos. "There is now a much greater interest in non-listed real estate assets."
The volume of capital invested in the non-listed sector is expected to grow and the Lymos report looks at whether pension funds in the three Nordic countries are following the general trend. Results confirm they are with 59% of survey respondents targeting non-listed investments.
However, only 30% confirmed they are active shareholders, as the majority (56.7%) take a passive role.
And while most pension funds said they are active in "following the development of returns", nearly three-quarters (73.9%) do not execute a financial hold/sell analysis that enables investors to establish whether the estimated returns (IRR) meet the internal criteria.
The main reason given was that such an analysis had never been considered. Others included: "decided to wait for termination"; "no exit possible due to lack of liquidity"; and "no exit possible due to lock-in agreement".
The survey also found pension funds in Norway, Sweden and Denmark do not tend to consider exiting any investments they hold in closed-end non-listed real estate funds prior to the termination date.
"Some have never even considered the possibility of selling before termination date," Meulman said.
"This is mainly due to the policy reasons for investing in non-listed real estate funds. In many cases, policy reasons seem to have a larger impact than the rational (allocation) arguments used by investors."
Furthermore, the survey concludes pension funds that participate in ‘club deals' will not execute a divestment strategy for fear of harming their relationships with investment partners or fund managers.
"Decisions that are not optimal for output may be made in order to maintain business relationships and increase accessibility to new investment opportunities," Muelman said.
"Even when the fund expects that the IRR will not meet internal criteria or even when the pension fund is overweighted in some sectors."
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