NETHERLANDS - Dutch pension funds and other institutional investors lead the field in non-listed real estate fund investing in Europe, research shows.
A survey by the European Association for Investors in Non-listed Real Estate Vehicles (INREV) said Dutch institutional investors invest €121.7bn ($156.3bn) in real estate, of which €41.6bn, or 35% of total assets, is invested in non-listed funds.
This share is forecast to grow to 38% over the next three years, rising by €12.5bn to €54bn.
Dutch investors' high allocations to non-listed means their direct real estate holdings, valued at approximately €45bn, are only slightly larger than their non-listed holdings, the association said. Insurance companies and a number of the large pension funds hold most of these direct real estate investments, the vast majority of which are domestic.
The large real estate universe is a factor of the overall size of the Dutch institutional market but is also due to their high allocations to real estate said INREV. Real estate represents 10.5% of the total assets of Dutch investors, while the market is twice the size of the German institutional real estate universe and about the same size as that of the UK.
INREV director of research and market information Lonneke Löwik said: "Dutch investors are highly sophisticated in their strategies for real estate. They have used the asset class for longer than their peers in other countries and make strategic decisions to include non-listed in their portfolio, rather than use it as a supplement to their direct investments."
Many of the small and medium-sized pension funds already invest heavily via non-listed (75% and 60% respectively), the survey found. They choose this route as they want the benefits of real estate such as stable returns and diversification but do not have the resources and scale to invest directly.
Meanwhile, larger pension funds have invested 41% in non-listed funds, 33% in listed real estate and only 21% in direct real estate.
Dutch pension funds invest more in real estate abroad than in the Netherlands, while insurance funds prefer direct domestic investments. Overall, non-domestic real estate exposure is 57% of the total real estate allocation. In contrast, non-domestic real estate investments account for 35% of the total German real estate universe, while in the UK they are only 11% of the total.
Löwik added: "Dutch pension funds' sheer size and the relatively small Dutch real estate market are major influences on their non-domestic strategies. The majority is indirect with almost half of their non-domestic real estate exposure invested via non-listed vehicles and slightly less via listed vehicles.
"Only a small percentage of non-domestic is invested directly, but this comes primarily from exposures left over from previous strategies or mergers with this set to grow by €12.5bn over the next three years."
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