Holding property directly is enabling two German pension funds to maintain a relatively high equities exposure, according to their head of planning and controlling.
The Zusatzversorgungskasse Rheinland-Westfalen (KZVK) and the Gemeinsamen Versorgungskasse f眉r Pfarrer und Kirchenbeamte (VKPB) invest 6.75% of their 鈧�8bn assets in direct real estate.
Peter-Henrik Blum-Barth, head of plannign and controlling, said this was one of the reasons the pension funds could 鈥渁fford鈥� a 25% equities exposure.
The 鈥渉idden reserves鈥� built from the steady cash-flow from these investments 鈥渉elps to increase risk-bearing capacity鈥�, he said.
鈥淏ecause of its predictable cash-flow the illiquidity premium from the direct real estate investments does not strain the economic risk budget of a pension fund.鈥�
He stressed that other factors, including regulatory ones and the structure of liabilities and guarantees, also had to be taken into account.
Wolfram Gerdes, managing director for investments, added: 鈥淒irect investments clearly have priority over real estate funds as they allow us to retain more added-value in-house.鈥�
He said fund investments were made in 鈥減articularly promising鈥� niches but for new investments directly held properties were 鈥渃learly preferred鈥�.
Gerdes also pointed out 鈥渁s soon as you have your own infrastructure鈥� to make such direct investments and manage them a pension fund 鈥渃an achieve effects of scale鈥�.
The pension funds prefer properties 鈥渨ithin our area of business鈥� 鈥� mainly the German province of Northrhine-Westphalia and surroundings.
鈥淭raditionally we are not only investing in metropolis when we see an attractive risk-return-relation but also in medium-sized urban centres,鈥� explained Gerdes. He added in those cities there was 鈥渓ess competition鈥� from international investors.
