UK - Industry experts are backing calls for an open debate on why consultants have been advising pension funds to exclude property from pension portfolios.
They believe it was wrong for property to be excluded on “prejudice” grounds and that pension funds should make their decision based on facts and a “wealth of information” available.
The calls come in the wake of a study by Royal & SunAlliance Property Investments and DTZ Research which found that total property weightings stood at 10pc – twice as high as the figure given by performance measurement firm WM Company.
The report said: “If performance measurement houses are failing to account appropriately for indirect property then benchmarks may be inappropriately defined.”
Towers Perrin partner Michael Parker said excluding property altogether was wrong if it was done without “due consideration”.
He said: “A lot of benchmarking of late has no reference whatsoever to property. I think this will change in the future as Myners is calling on trustees to give more focus to property.”
Weak performance of property in the last decade has led to a steady shift away from the asset class. This in turn has led to some consultants omitting property from asset liability models.
Frank Russell client services director Robert Ross said excluding property from benchmarks depended on the size of the pension fund, its asset allocation and the cost of the property.
He said: “There are pros and cons to excluding property from benchmarks. The pros are that property is very labour intensive, stamp duty on it is 4pc and compared to other asset classes it is very expensive. The cons are that it is a good diversifier, has higher returns that bonds and produces reasonably high income.”
By Michael Schiniou
This week's edition of Professional Pensions is out now.
Industry Voice: Sponsored by Eaton Vance
BNY Mellon has launched a range of reporting tools to help institutional investor clients track and evaluate portfolio investments based on environmental, social and governance (ESG) issues.
PP speaks to BESTrustees director Heather McGuire about her views on the CMA's review into the investment consultant and fiduciary management markets.