Aon Hewitt has advised UK pension funds to consider using real estate more widely in their multi-asset portfolios.

The pension investment consultancy has made the case for looking beyond property as a simple source of diversification to an asset class that can play a number of roles.

In a new white paper, Aon said there were now more types of property strategies accessible to pension schemes than a few years ago, and that they should look beyond traditional domestic core funds.

Nick Duff, Partner at Aon Hewitt, told ΒιΆΉΣ³»­ Real Estate: β€œPension funds could benefit from using real estate, infrastructure and other illiquids more extensively in their portfolios.

β€œIn the case of real estate, we want them to think about potential roles [it can play] within different strategies as part of a wider pool of assets,” he said, moving away from simply providing β€œtraditional diversification benefits”.

Duff added: β€œFor example, as part of a cash-flow generating strategy or within a wider private-markets programme.

β€œReal estate can offer many different risk and return attributes ranging from lower-risk, inflation-linked assets where returns are primarily driven by income to higher risk, value-add and opportunistic funds which are more growth focused.”

The Aon paper, Constructing Your Property Portfolio, cites a number of new strategies, including those focusing on debt, long-term, inflation-linked cash flows, value-added and opportunistic strategies and the private-rented housing sector.

β€œThese opportunities offer a range of attractive risk-adjusted returns and can help pension schemes navigate a world where the yield and expected return on traditional asset classes remain low compared to historical standards,” Aon said.

 it had raised Β£500m (€566m) for a real assets fund designed to provide UK pension funds inflation-linked cash flows, investing in asset classes such as real estate debt and long-lease property.

Duff said: β€œOverall, we believe a well-diversified property portfolio across different strategies and regions – rather than just focused on UK core commercial property – will help schemes and their wider investment and funding objectives.”

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