EUROPE - Plans by the European Union to introduce Solvency II- type regulations to the pensions industry could hinder investments in real estate, delegates at the European Association for Investors in Non-listed Real Estate Vehicles (INREV) seminar heard.
The expected proposal will set capital requirements on investments which may force pension fund mangers to move their asset allocation from higher returning investments like real estate and equities into bonds.
Cornerstone chief executive officer Ian Reid said: "If you invest a pound in real estate for a 6% return, you have to put another 25p in the bank as risk reserve. This would increase to 39p if there is any debt in your purchase; these are the expected figures which leaves little return for fund investors.
"Pension plans have been cutting back in equities anyway and the return on fixed income is so low that plan sponsors will end up making more contributions."
The 2011 INREV survey found 42% of investors were unaware about the Solvency II proposal. According to Reid, fund consultants need to gain much more perspective on this since the forthcoming proposal for insurers is going into effect on 1 January 2013. Other results from the survey found the majority of respondents selected German retail as their preferred investment location and sector for 2011 (Global Pensions: 25 January 2011).
The proposal was also criticised by the National Association of Pension Funds who said additional solvency requirements would work against pension provision and could lead to the further closure of defined-benefit schemes (Global Pensions: 15 November 2011).
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