The special characteristics of property investments make it worth considering as a powerful alternative investment for UK pension funds, according to Merrill Lynch Investment Managers (MLIM).
This belief is expressed in a report examining the fall of the average UK pension fund property weighting from 20% in 1980 to the current 4%.
The report, titled ‘Property: The first alternative investment’, found that the fall in pension fund property weighting was caused by the strong re-rating of equities and bonds in the last 20 years and the effect on asset allocation of the minimum funding requirement (MFR) for pension schemes, introduced in 1977.
“The MFR made investing in assets that were not equities or UK government bonds unattractive for many pension funds,” said MLIM.
The company however explained that there are good reasons for pension funds to consider property investment afresh. Paul Taylor, director of MLIM real estate, commented: “For too many pension funds, property has become the Cinderella asset class. Whilst the reasons for this are understandable, the factors that led to this happening are unlikely to all occur again.
“The industry has grown up, information flow is far better and investing in property is easier via direct investment.”
By Janet Du Chenne
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