EUROPE - European pension funds currently hold around half of their optimal real estate allocation, according to new research.
JPMorgan Asset Management’s (JPMAM) European real estate team suggested that, for optimal benefit, pension funds should move to a weighting of 10% to 15%, instead of their current average allocation of 6.5% of the fund portfolio.
Nick Tyrrell (pictured), director of Research and Strategy for JPMAM Real Estate’s European team, authored the white paper in response to the steady rise of real estate as a global asset class.
“Real estate is often classed as an ‘alternative’ investment and relegated to a minor weighting in an investment portfolio, yet this minority status belies the powerful role real estate can play in a multi-asset strategy,” he said.
“In a low interest rate environment in which the performance of equities is uncertain, investors are increasingly seeking reasonable returns at moderate risk.
“Real estate has the potential to offer this combination. Our research suggests investors across Europe should reassess and increase the proportion of assets they assign to real estate.”
The research alluded to findings that pension funds’ allocations to real estate currently vary widely by country, from between 0.2% in Austria to 68.5% in Italy.
Holdings in Europe, it added, have been found to be, on average, significantly larger than the US and Japan, where real estate weightings are 3.4% and 1% respectively.
JPMorgan Real Estate has recently expanded its European Real Estate team and manages nearly e27bn on behalf of global clients.
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