UK - Legal & General is calling for more industry involvement in the design of property investment funds.
Consultation on PIFs – closed-ended, tax transparent investment vehicles – comes to an end this month.
L&G property business development manager Michael Patrick said the proposals could lead to an “investment nirvana” if the vehicles were structured well.
He said: “Existing property investment vehicles fail to meet the needs of the market and the economy, and PIFs have the potential to change this. But industry has clear ideas on how it should be done and PIFs will fail if government gets it wrong.”
L&G warned against over-regulation and urged government not to use PIFs as a tax-raising exercise.
It also believes introducing conversion charges for funds which already operate in a tax transparent form and want to convert to a PIF would be a mistake.
Patrick said institutional investors were currently reluctant to invest in residential property because of the high maintenance and management costs for relatively small returns.
But he said there was no reason why PIFs would not mirror the success of real estate investment trusts (REITs) in the US, where investment grew from $5bn (£1.2bn) in 1983 to $225bn (£123bn) in 2003.
Mercer Investment Consulting has already criticised the government for making PIFs “too costly” for schemes to convert their property investments into PIFs.
And Schroders said that while pension funds had traditionally ignored the residential property market – due to concerns over the management burden, reputational risk and a lack of credible benchmarks – allocation to the sector was increasing.
It said that during the five, 10 and 20 years to December 31, 2003, residential property had outperformed commercial property, equities and gilts.
It added that it provides extra risk diversification and is over five times the size of the commercial market in the UK.
Standard Life has increased exposure to risk assets in three out of five funds in its Active Plus and Passive Plus workplace pension ranges.
Some 48% of employers are unaware of the services or help they offer to members of their defined contribution (DC) schemes, according to Aon.
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