UK pension funds seeking to extend investment in overseas property

Despite falling property prices worldwide over a quarter of property funds in the UK are planning to increase their investments in the real estate sector, according to new research.

A survey of over 200 pension fund managers, trustees and investment consultants found that 26% will increase their property asset allocation in the next three years.

The research by the Pensions Management Institute, a UK professional body, and PRUPIM, a real estate investment manager, also found that 55% think their allocations in the property sector will not change.

About one in ten of those questioned said their investments in property would fall and a similar proportion was undecided.

It is the smaller funds that are seeking to increase the amount of property in their portfolios. Funds with less that £200 million of assets said they were actively looking at property and none said they expected to decrease the amount of property assets.

But the large funds, those with over £1 billion of assets, are planning to stay put or only slightly increase the amount of property assets.

Those who are investing abroad favour Europe. Of the funds with international property assets over half invested in Europe, 10% in Asia and 14% in global and US property. Over three quarters invested via pooled funds and other investment vehicles with only 18% investing directly in bricks and mortar.

'It is reassuring to find that pension fund managers and trustees still see opportunities in both the UK and overseas commercial real estate markets over the next three years,' said Professor Paul MacNamara, head of property research as PRUPIM.

'Real estate investment provides pension funds with the ability to diversify their risk and we believe it is the principal driver behind their movement into overseas markets,' he added.