UK Pensions Could Benefit from Diversified Property Investments

Aon white paper says pensions shouldn’t focus solely on commercial property.

UK pensions would benefit from both increasing and diversifying their asset allocation of property investments, according to a new white paper released by insurance company Aon Hewitt.

Property allocations within pension portfolios are typically in the form of UK core commercial property, either by investing in commingled funds, or as a segregated arrangement. However, in recent years, there has been an increase in the investable opportunity set within the property asset class, according to the white paper.

“Overall, 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,” said Nick Duff, partner at Aon Hewitt.

The firm said funds that focus on property debt, long-term inflation linked cash flows, the private rented sector, and other aspects of the real estate industry are now easily accessible for pension plans.

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“There are a wide range of investment opportunities within the property universe,” said the white paper. “Having a more robust property portfolio by using the full opportunity set within the asset class would allow pension schemes to tailor the portfolio to suit their specific needs.”

In addition to pensions diversifying away from UK commercial property, the white paper said plans should consider higher overall allocations to property in relation to equities and bonds. UK commercial property has been a boon to pension plans in recent years, as the sector has delivered returns of around 9% a year since the end of 2008, says Aon Hewitt.

The white paper cited a few property strategies pension plans can employ, which it labeled as “income generation,” “return seeking,” “inflation linkage,” and “diversification.” An “income generation” portfolio has an allocation of 70% core commercial property, 20% property debt whole loans, and 10% property debt senior loans. A “return seeking” portfolio has an allocation of 50% core commercial property, 15% property debt whole loans, 15% property debt mezzanine, 10% private rented sector, and 10% value add. An “inflation linkage” portfolio has an allocation of 50% high lease value, 25% core, and 25% rented sector. And a “diversified” portfolio has an allocation of 50% core, 20% property debt, 15% higher lease value, 10% private rented sector, and 5% value add.

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

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Robert “Vince” Smith Joins Innovation Awards Board

Award nominations close in less than three weeks.

Robert “Vince” Smith, CIO and deputy state investment officer of the New Mexico State Investment Council, joined the advisory board for CIO’s eighth annual Industry Innovation Awards on Monday. Smith adds his acumen to the board which also includes Jagdeep Bachher of the University of California Office of the President, Tim Barrett of Texas Tech University System, Robert Hunkeler of International Paper, Jacque Millard of Intermountain Healthcare, and Mark Schmid of the University of Chicago. The awards seek to highlight the most innovative CIOs of 2017.

With fewer than three weeks to nominate asset owners and managers/servicers for this year’s awards, CIO has already received more than 100 nominations. Nominations are open to industry professionals and will close on Friday, August 4. All finalists will be announced in early September.

The Innovation Awards ceremony will take place December 7 at the New York Public Library.

This year’s asset owner categories include (2016 winners in parentheses): 

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Foundation (University of Arizona Foundation, Craig Barker)

Endowment (Texas Tech University System, Tim Barrett)

Corporate Defined Benefit Pension Plan Below $5 Billion (Blue Cross Blue Shield Association, Jamey Sharpe)

Corporate Defined Benefit Pension Plan Above $5 Billion (International Paper, Robert Hunkeler)

Public Defined Benefit Plan Below $15 Billion (MoDOT and Patrol Employees’ Retirement System, Larry Krummen)

Public Defined Benefit Plan Between $15 Billion and $100 Billion (Pennsylvania Public School Employees’ Retirement System, Jim Grossman)

Public Defined Benefit Plan Above $100 Billion (State of Wisconsin Investment Board, David Villa)

Sovereign Wealth Fund (new category)

Healthcare Organization (Intermountain Healthcare, Jacque Millard)

Defined Contribution Plan (American Airlines, Ken Menezes)

Next Generation (UPS, Greg Spick)

Consulting (Aksia, Jim Vos)

 Asset management categories include (2016 winners in parentheses; italics indicate altered category): 

Fixed Income (BlackRock)

Equities (including alternative equity beta) (Parametric)

Multi-Asset (including risk-balanced strategies) (Risk Premium Investment Management Company)

Private Equity (Blackstone)

Hedge Funds (Marshall Wace)

Real Assets (Pantheon)

Defined Contribution Strategies (NISA Investment Advisors)

Investment Outsourcing (Goldman Sachs Asset Management)

Corporate Investment Strategies (Nuveen)

Corporate Liability Strategies (Prudential)

Transition Management (Macquarie)

Data & Technology (Solovis)

**New 2017 Category: ESG Investing

Let us know who inspires you in this industry, and why. The nomination form can be found here: https://www.research.net/r/2017IIANominations.

 

 

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