THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS

1
THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN
PENSION FUNDS

• GRAEME NEWELL
• University of Western Sydney

2
PENSION FUNDS

• Increased importance
• Over 30 trillion in assets
• Real estate 5-10 in portfolio
• European pension funds
• - changes - moving forward

3
OBJECTIVES

• Pension funds in Europe changes
• Leading pension funds in Europe re real estate
• Survey European pension funds re real estate
  strategy
• Identify strategies re levels of real estate
  moving forward

4
PENSION FUNDS IN EUROPE

• LEADING PLAYERS
• - global ? - local ?
• - 2 _at_ top 3
• - 4 _at_ top 20
• - 11 _at_ top 50
• - 30 _at_ top 100
• - 94 _at_ top 300
• ASSET ALLOCATIONS
• - real estate - fixed income - shares
• - future liabilities

5
Leading pension funds in Europe
Pension fund Country Global rank Total assets (2011)
Government Pension Fund Global Norway 2 551B
APG Netherlands 3 319B
PPGM Netherlands 13 133B
ATP Denmark 17 124B
6
OTHER EUROPEAN PENSION FUNDS

• ALECTA 34 _at_ 74B
• BVK 38 _at_ 65B
• British Telecom 43 _at_ 58B
• SHELL 44 _at_ 56B
• Universities Superannuation 50 _at_ 50B
• FRR 54 _at_ 49B
• VARMA 64 _at_ 44B
• Royal Mail 66 _at_ 43B
• Bundes Pensionskasse 83 _at_ 36B
• British Airways 128 _at_ 24B
• Zilverfond 133 _at_ 24B
• Nestle 151 _at_ 21B
• Daimler 252 _at_ 13B
• Rolls-Royce 259 _at_12B

7
PENSION FUND ASSETS THRESHOLDS

• Top 5 264B
• Top 10 145B
• Top 25 88B
• Top 50 50B
• Top 100 31B
• Top 150 21B

8
DRIVERS OF PENSION FUND CHANGES IN EUROPE

• DEMOGRAPHICS
• COSTS AND DEFICIENCIES
• FUTURE LIABILITIES
• CHANGES

9
Demographic factors in Europe 2005-2050
Country Old-age dependency ratio Old-age dependency ratio Pension sustainability index
Country 2005 2050 Pension sustainability index
UK 24 45 33
Germany 30 56 26
Netherlands 21 39 40
France 25 48 19
Denmark 23 40 42
Switzerland 24 39 36
Spain 24 67 6
10
Demographic factors in Europe 2005-2050
Country Old-age dependency ratio Old-age dependency ratio Pension sustainability index
Country 2005 2050 Pension sustainability index
Italy 30 66 9
Norway 22 41 39
Sweden 26 41 43
Finland 25 47 37
Ireland 17 45 16
Austria 25 53 24
Belgium 26 48 18
11
PENSION SUSTAINABILITY INDEX

• 1 Greece 7 Turkey 8 Romania
• 10 Slovak Rep. 11 Cyprus 12 Malta
• 13 Hungary 14 Slovenia 15 Portugal
• 20 Luxembourg 21 Bulgaria 23 Lithuania
• 25 Poland 27 Russia 29 Czech Rep.
• 30 Croatia 32 Estonia 34 Latvia

12
MERCER GLOBAL PENSION INDEX

• 6 France 7 Germany 9 Netherlands
• 11 Sweden 12 Switzerland 13 UK
• 1 Australia 3 Canada 8 Japan
• 10 Singapore 14 USA

13
REAL ESTATE IN PENSION FUNDS
14
DATA SOURCES

• IP RE Investor Survey
• PI/Towers Watson World 300 Pension Funds
• Allianz
• PruPIM
• OECD
• Annual reports from websites of various pension
  funds
• EPRA
• Pension fund survey Newell (2012)

15
REAL ESTATE IN EUROPEAN PENSION FUNDS

• Top 100 pension funds _at_ Europe re real estate
• Total AUM 1.7 trillion
• Real estate AUM 152 billion
• Real estate 9.1
• Real estate median AUM 900M
• Real estate average AUM 1.5B

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REAL ESTATE IN EUROPEAN PENSION FUNDS

• Country profile ()
• UK 25 Netherlands 16 Denmark 12
• Switzerland 9 Germany 8 Sweden 7
• Belgium 4 Finland 3 Norway 2
• Ireland 2 France 2 Portugal 2
• Italy 1

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REAL ESTATE IN EUROPEAN PENSION FUNDS

• Country profile (RE)
• UK _at_ 17 Netherlands _at_ 36 Denmark _at_ 8
• Switzerland _at_ 10 Germany _at_ 10 Sweden _at_
  10
• Belgium _at_ 1 Finland _at_ 2 Norway _at_ 1
• Ireland _at_ lt1 France _at_ 1 Portugal _at_ 1
• Italy _at_ 2

18
REAL ESTATE THRESHOLDS

• Top 5 5.3B
• Top 10 3.6B
• Top 20 1.9B
• Top 50 0.9B
• gt 10B 2
• gt 2B 15
• gt 1B 45

19
MAJOR REAL ESTATE PLAYERS ()
20
MAJOR REAL ESTATE PLAYERS ()
21
MAJOR REAL ESTATE PLAYERS ()

• 1 APG _at_ Netherlands
• 21.8B R.E. 9.2
• 2 PGGM _at_ Netherlands
• 12.9B R.E. 12.0
• 3 BVK _at_ Germany
• 6.4B R.E. 11.4
• 4 BPF Bouw _at_ Netherlands
• 5.6B R.E. 19.4

22
CONTRIBUTIONS TO TOTAL REAL ESTATE EXPOSURE IN
TOP 100

• Top 2 22.9
• Top 5 34.3
• Top 10 47.9
• Top 25 68.9
• Top 50 88.3
• Top 75 97.6

23
MAJOR REAL ESTATE PLAYERS () NETHERLANDS

• APG 21.8B _at_ 9.2 _at_ 1
• PGGM 12.9B _at_ 12.0 _at_ 2
• BPF Bouw 5.6B _at_ 19.4 _at_ 4
• Shell 1.4B _at_ 3.8 _at_ 29
• Stichting Spoorwegpensioenfonds 1.4B _at_11.9 _at_
  30
• Plus 44, 53, 59, 61, 66, 68, 71, 73, 81,
  94

24
MAJOR REAL ESTATE PLAYERS () UK

• BT 4.4B _at_ 10.5 _at_ 7
• Universities Superannuation 3.1B _at_ 8.5 _at_ 11
• Railway Pension Scheme 1.9B _at_ 9.0 _at_ 18
• BP 1.8B _at_ 4.5 _at_ 22
• Royal Mail 1.8B _at_ 4.5 _at_ 23
• British Airways 1.3B _at_ 7.0 _at_ 33
• Plus 41, 43, 46, 47, 48, 50, 55, 69, 75,
  77, 78, 79, 84, 85, 86, 88, 91, 97

25

• MAJOR REAL ESTATE PLAYERS () GERMANY
• BVK 6.4B _at_ 11.4 _at_ 3
• AW-L 1.9B _at_ 18.0 _at_ 19
• Siemens 1.5B _at_ 7.0 _at_ 26
• Plus 35, 37, 44, 60, 80
• MAJOR REAL ESTATE PLAYERS () DENMARK
• ATP 2.9B _at_ 6.2 _at_ 12
• PFA Pension 2.0B _at_ 5.2 _at_ 16
• PKA 1.8B _at_ 8.9 _at_ 21
• Plus 32, 40, 52, 56, 65, 70, 76, 91, 98

26

• MAJOR REAL ESTATE PLAYERS () SWEDEN
• AMF 4.8B _at_ 11.8 _at_ 6
• Alecta 3.8B _at_ 7.1 _at_ 9
• AP3 1.9B _at_7.7 _at_ 19
• AP2 1.3B _at_5.0 _at_ 31
• Plus 49, 58, 62
• MAJOR REAL ESTATE PLAYERS () SWITZERLAND
• Migros-Pensionskasse 4.0B _at_ 29.3 _at_ 8
• UBS 2.7B _at_ 13.0 _at_ 13
• Publica 1.7B _at_ 6.8 _at_ 24
• CPV/CAP 1.4B _at_ 25.5 _at_ 27
• Plus 34, 38, 39, 72, 74

27

• FINLAND
• Keva 2.4B _at_ 7.9 _at_ 15
• Plus 42, 54
• BELGIUM
• GDF Suez 1.5B _at_ 2.5 _at_ 25
• FRANCE
• Air France-KLM 1.4B _at_ 10.0 _at_ 28
• ITALY
• Fondazione Enasarco 2.5B _at_ 41.0 _at_ 14
• NORWAY
• GPF-Global 1.2B _at_ 0.3 _at_ 35

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AVERAGE LEVEL OF REAL ESTATE

• Average 9.1
• Top 5 _at_ 12.1
• Top 10 _at_ 13.3
• Top 25 _at_ 11.3
• Top 26 50 _at_ 8.5
• Top 51 75 _at_ 10.4
• Top 76 100 _at_ 6.0

29
AVERAGE LEVEL OF REAL ESTATE

• Average 9.1
• UK 6.9 Netherlands 8.5
• Denmark 8.2 Germany 9.9
• Switzerland 16.7 Sweden 7.4
• Belgium 5.4 Finland 11.7
• France 10.5 Norway 7.2

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MAX LEVEL OF REAL ESTATE

• 1 Fondazione Enasarco 41 _at_ Italy (14)
• 2 CGD Pensoes-SGFP 36 _at_ Portugal (57)
• 3 Schindler Pensionskasse 30 _at_ Switzerland
  (74)
• 4 Migros-Pensionskasse 29 _at_ Switzerland (8)
• 5 CPV/CAP 26 _at_ Switzerland (27)
• 6 BPF Bouw 19 _at_ Netherlands (4)
• 7 AW-L 18 _at_ Germany (19)

31
MAX LEVEL OF REAL ESTATE

• Italy 41 (FE _at_ 14)
• Portugal 36 (CGD _at_ 57)
• Switzerland 30 (Schindler _at_ 74)
• Netherlands 19 (BPF Bouw _at_ 4)
• Germany 18 (AW-L _at_ 19)
• Denmark 16 (ISP _at_ 76)
• Finland 15 (Etera _at_ 54)
• Norway 14 (Oslo P. _at_ 51)
• UK 11 (BBC _at_ 41)
• France 11 (UMR Corem _at_ 63)
• Belgium 9 (KBC _at_ 91)

32
EUROPEAN PENSION FUND SURVEY

• REAL ESTATE IN PENSION FUNDS IN EUROPE

33
REAL ESTATE ISSUES

• BENEFITS
• ALLOCATION CRITERIA
• VEHICLES
• LISTED VERSUS DIRECT
• CHALLENGES
• OVERALL VIEW ON REAL ESTATE
• RISKS SOLVENCY II

34
ENABLING STRATEGIES

• STRATEGIES ? ?
• - fund size - real estate experience
• REAL ESTATE VEHICLES ?
• - separate accounts - club deals - JVs
• REAL ESTATE RISK MANAGEMENT ?
• REAL ESTATE INFORMATION ?
• PROACTIVE ROLE BY REAL ESTATE INDUSTRY ?
• AWARENESS OF RISK FACTORS

35
OTHER ISSUES

• REITs
• International diversification
• Alignment of interest
• Impact of DC schemes
• Liquidity
• Role of alternative assets

36
REAL ESTATE IMPLICATIONS

• CONTINUED ACCEPTANCE AND IMPORTANCE OF REAL
  ESTATE IN EUROPEAN PENSION FUNDS???
• INCREASED UNDERSTANDING OF REAL ESTATE AS AN
  ASSET CLASS FOR EUROPEAN PENSION FUNDS???
• LEADERS _at_ EUROPE
• RISKS SOLVENCY II
• OPPORTUNITIES FOR REAL ESTATE INDUSTRY IN EUROPE