UK - Consultants' claims that small schemes do not receive enough risk diversification from segregated property portfolios are "overstated", MNPA claims.
The pension administration firm is at odds with consultant Hymans Robertson who argued that a scheme with less than £100m to allocate to property should not even think of establishing a segregated property portfolio, as diversification is too low.
MNPA – which also manages two property funds – said performance figures from its £35m direct property pension fund disproves Hymans’ claims.
Over the last 10 years (to December 2001) the fund’s portfolio has produced annualised total returns of 11.8% per annum. This compares with property market performance, as measured by the IPD Universe of 10.5% per annum and pooled pension returns of 9.7% per annum.
MNPA’s property management team head Nick Yeomans argues portfolio theory shows that to eliminate risk, an investor should hold shares in all the companies quoted on the stock market. But the theory also demonstrates that constructing a portfolio of shares, from between 15 to 20 different companies selected at random, results in the elimination of around 90% of the same risk.
He explained: “Applying this to property investment would suggest that it is possible for small funds to be properly diversified without having to consider pooled vehicles as their only option.
“If they can be made to perform consistently better than their pooled vehicle competitors, then segregated funds should certainly be seen as a viable option for small funds.”
Hymans Roberston consultant Geoff Singleton said, although some small directly invested portfolios had performed well, by default they are unable to offer full diversification by investing in larger properties, such as shopping centres.
This, he said, meant that many were unable to cover as much as 50% of the property universe.
Singleton added: “If you are not able to access those parts of the market, you run the risk that those large assets will outperform and that you will miss out.”
*Speaking at the fund managers’ investment and charities conference last week, Schroder Property Investment Management argued that indirect property investment had superseded direct investment for pension funds.
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