ASIA - Asian pension funds should invest more in real estate if they want to bring in enough returns to meet their liabilities, a new report shows.
Research by the University of Western Sydney and commissioned by the Asia Pacific Real Estate Association (APREA) says Asian pension funds should try to emulate their European and US counterparts and increase their holdings in property.
Globally, pension funds allocate $750bn in real estate with allocations ranging from 7% to 10% of their overall portfolios. In contrast, allocations by Asian pension funds do not represent a significant percentage, APREA said.
In Japan, for example, 35% of pension funds invest in real estate, but the average allocation is only 1.2%. In South Korea however, the allocation to real estate has skyrocketed from 1% to 10% in only the past 10 months.
South Korea's National Pension Service has been particularly active hiring The Townsend Group to invest $300m in real estate in North and South America and Rockspring Property Investment Managers to invest $400m in commercial property across Europe last month. (Global Pensions; September 24, 2010)
"Pension funds have typically been highly conservative, focusing on domestic fixed income assets, and asset allocation restrictions, often mandated by regulation, in some cases exclude real estate as a valid asset class, for example in China and Taiwan.
"Professor (Graeme) Newell's report stresses the risks that this approach presents in producing sufficient returns long-term," APREA said.
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