Property has become a well-established asset class within institutional investors’ portfolios, boosting the growth of both the public and private real estate markets.
Over the last 10 years, pension funds and other institutions across the world have moved from direct holdings in property to indirect exposure to the asset class through the use of funds. This has helped towards the diversification of portfolios across different countries and investment types. The internationalisation and greater sophistication of investors’ approach to real estate has resulted in pension funds having to hire external expertise.
According to data compiled by FT Mandate Research, a total of 60 property mandates were awarded to external asset managers during the 24 months to the end of March this year. The total value of these mandates was around €16.3bn.
Based on the data collected during this two-year period, Hermes Pensions Management suceeded in attracting the largest amount of institutional assets, totalling just over €3.8bn. The firm was awarded two mandates by two different UK pension funds, the Gloucestershire County Council Pension Fund and the Royal Mail Pension Fund. In the first, a €63m brief to invest in the Hermes Property Trust, Hermes replaced three previous managers – Henderson Global Investors, Insight Investments and Société Générale Asset Management.
Taking second position in our table of top managers by property mandate wins is Axa Real Estate Investment Management, which secured a €3.6bn brief from Manchester’s Co-operative Insurance Society for the complete outsourcing of their property portfolio through investments in European real estate.
The large majority of the mandates compiled are for investments in Europe, with two dedicated to real estate investments in North America and only one in the Asia-Pacific region. Most of the mandates awarded came from UK-based institutions, with a minority coming from countries such as the US, France, the Netherlands and Italy.
The third manager in our top 10 table, Arlington Property Investors, also attracted the largest number of property briefs, with a total of five different wins coming from both local authority and corporate pension funds in the UK. The largest contract for the firm came from the defined benefit scheme of the Barclays Bank UK Retirement Fund, which hired Arlington to manage a property portfolio of €2.1bn.
Although in many of the cases managers were appointed to manage a new property mandate, in some cases the appointments came as a result of the replacement of previous holders. In our list of property mandates, Deutsche Asset Management and Schroder Investment Management and Henderson Global Investors appeared three times each in our list of managers replaced, followed by Merrill Lynch Investment Managers with two entries.
The importance of the role played by investment consultants when it comes to manager selection is reflected in the fact that only 15 investors out of the 60 in our study didn’t use a consultant during the process of choosing a property investment manager. Watson Wyatt was used in 14 of the mandates identified by our research followed by Mercer Investment Consulting with nine appearances.
Looking at the details of the property briefs analysed, the majority relate to indirect investments in real estate or a combination of both direct investments and the use of funds.
See property report on page 26-27
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