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THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS

THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS. GRAEME NEWELL University of Western Sydney. PENSION FUNDS. Increased importance Over $30 trillion in assets Real estate: 5-10% in portfolio European pension funds - changes - moving forward. OBJECTIVES.

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THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS

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  1. THE SIGNIFICANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS GRAEME NEWELL University of Western Sydney

  2. PENSION FUNDS • Increased importance • Over $30 trillion in assets • Real estate: 5-10% in portfolio • European pension funds - changes - moving forward

  3. OBJECTIVES • Pension funds in Europe: changes • Leading pension funds in Europe re: real estate • Survey European pension funds re: real estate strategy • Identify strategies re: levels of real estate moving forward

  4. PENSION FUNDS IN EUROPE • LEADING PLAYERS - global  - local  - 2 @ top 3 - 4 @ top 20 - 11 @ top 50 - 30 @ top 100 - 94 @ top 300 • ASSET ALLOCATIONS - real estate - fixed income - shares - future liabilities

  5. Leading pension funds in Europe

  6. OTHER EUROPEAN PENSION FUNDS • ALECTA: #34 @ $74B • BVK: #38 @ $65B • British Telecom: #43 @ $58B • SHELL: #44 @ $56B • Universities Superannuation: #50 @ $50B • FRR: #54 @ $49B • VARMA: #64 @ $44B • Royal Mail: #66 @ $43B • Bundes Pensionskasse: #83 @ $36B • British Airways: #128 @ $24B • Zilverfond: #133 @ $24B • Nestle: #151 @ $21B • Daimler: #252 @ $13B • Rolls-Royce: #259 @12B

  7. PENSION FUND ASSETS: THRESHOLDS • Top 5: $264B • Top 10: $145B • Top 25: $88B • Top 50: $50B • Top 100: $31B • Top 150: $21B

  8. DRIVERS OF PENSION FUND CHANGES IN EUROPE • DEMOGRAPHICS • COSTS AND DEFICIENCIES • FUTURE LIABILITIES • CHANGES

  9. Demographic factors in Europe: 2005-2050

  10. Demographic factors in Europe: 2005-2050

  11. PENSION SUSTAINABILITY INDEX #1: Greece #7: Turkey #8: Romania #10: Slovak Rep. #11: Cyprus #12: Malta #13: Hungary #14: Slovenia #15: Portugal #20: Luxembourg #21: Bulgaria #23: Lithuania #25: Poland #27: Russia #29: Czech Rep. #30: Croatia #32: Estonia #34: Latvia

  12. MERCER GLOBAL PENSION INDEX #6: France #7: Germany #9: Netherlands #11: Sweden #12: Switzerland #13: UK #1: Australia #3: Canada #8: Japan #10: Singapore #14: USA

  13. REAL ESTATE IN PENSION FUNDS

  14. DATA SOURCES • I&P RE “Investor Survey” • P&I/Towers Watson World 300 Pension Funds • Allianz • PruPIM • OECD • Annual reports from websites of various pension funds • EPRA • Pension fund survey: Newell (2012)

  15. REAL ESTATE IN EUROPEAN PENSION FUNDS • Top 100 pension funds @ Europe re: real estate $ • Total AUM = €1.7 trillion • Real estate AUM = €152 billion • Real estate % = 9.1% • Real estate median AUM = €900M • Real estate average AUM = €1.5B

  16. REAL ESTATE IN EUROPEAN PENSION FUNDS • Country profile (#) * UK = 25 * Netherlands = 16 *Denmark = 12 * Switzerland = 9 * Germany = 8 * Sweden = 7 * Belgium = 4 * Finland = 3 * Norway = 2 * Ireland = 2 * France = 2 * Portugal = 2 * Italy = 1

  17. REAL ESTATE IN EUROPEAN PENSION FUNDS • Country profile (RE$) * UK @ 17% * Netherlands @ 36% *Denmark @ 8% * Switzerland @ 10% * Germany @ 10% * Sweden @ 10% * Belgium @ 1% * Finland @ 2% * Norway @ 1% * Ireland @ <1% * France @ 1% * Portugal @ 1% * Italy @ 2%

  18. REAL ESTATE THRESHOLDS • Top 5 = €5.3B • Top 10 = €3.6B • Top 20 = €1.9B • Top 50 = €0.9B • # > €10B = 2% • # > €2B = 15% • # > €1B = 45%

  19. MAJOR REAL ESTATE PLAYERS (€)

  20. MAJOR REAL ESTATE PLAYERS (€)

  21. MAJOR REAL ESTATE PLAYERS (€) • # 1: APG @ Netherlands * €21.8B * R.E. % = 9.2% • # 2: PGGM @ Netherlands * €12.9B * R.E. % = 12.0% • # 3: BVK @ Germany * €6.4B * R.E. % = 11.4% • # 4: BPF Bouw @ Netherlands * €5.6B * R.E. % = 19.4%

  22. CONTRIBUTIONS TO TOTAL REAL ESTATE EXPOSURE IN TOP 100 • Top 2: 22.9% • Top 5: 34.3% • Top 10: 47.9% • Top 25: 68.9% • Top 50: 88.3% • Top 75: 97.6%

  23. MAJOR REAL ESTATE PLAYERS (€): NETHERLANDS • APG: €21.8B @ 9.2% @ #1 • PGGM: €12.9B @ 12.0% @ #2 • BPF Bouw: €5.6B @ 19.4% @ #4 • Shell: €1.4B @ 3.8% @ #29 • Stichting Spoorwegpensioenfonds: €1.4B @11.9% @ #30 Plus #44, #53, #59, #61, #66, #68, #71, #73, #81, #94

  24. MAJOR REAL ESTATE PLAYERS (€): UK • BT: €4.4B @ 10.5% @ #7 • Universities Superannuation: €3.1B @ 8.5% @ #11 • Railway Pension Scheme: €1.9B @ 9.0% @ #18 • BP: €1.8B @ 4.5% @ # 22 • Royal Mail: €1.8B @ 4.5% @ #23 • British Airways: €1.3B @ 7.0% @ #33 Plus #41, #43, #46, #47, #48, #50, #55, #69, #75, #77, #78, #79, #84, #85, #86, #88, #91, #97

  25. MAJOR REAL ESTATE PLAYERS (€): GERMANY • BVK: €6.4B @ 11.4% @ #3 • AW-L: €1.9B @ 18.0% @ #19 • Siemens: €1.5B @ 7.0% @ #26 Plus #35, #37, #44, #60, #80 MAJOR REAL ESTATE PLAYERS (€): DENMARK • ATP: €2.9B @ 6.2% @ #12 • PFA Pension: €2.0B @ 5.2% @ #16 • PKA: €1.8B @ 8.9% @ #21 Plus #32, #40, #52, #56, #65, #70, #76, #91, #98

  26. MAJOR REAL ESTATE PLAYERS (€): SWEDEN • AMF: €4.8B @ 11.8% @ #6 • Alecta: €3.8B @ 7.1% @ #9 • AP3: €1.9B @7.7% @ #19 • AP2: €1.3B @5.0% @ #31 Plus #49, #58, #62 MAJOR REAL ESTATE PLAYERS (€): SWITZERLAND • Migros-Pensionskasse: €4.0B @ 29.3% @ #8 • UBS: €2.7B @ 13.0% @ #13 • Publica: €1.7B @ 6.8% @ #24 • CPV/CAP: €1.4B @ 25.5% @ #27 Plus #34, #38, #39, #72, #74

  27. FINLAND • Keva: €2.4B @ 7.9% @ #15 Plus #42, #54 BELGIUM • GDF Suez: €1.5B @ 2.5% @ #25 FRANCE • Air France-KLM: €1.4B @ 10.0% @ #28 ITALY • Fondazione Enasarco: €2.5B @ 41.0% @ #14 NORWAY • GPF-Global: €1.2B @ 0.3% @ #35

  28. AVERAGE LEVEL OF REAL ESTATE: % • Average % = 9.1% • Top 5 @ 12.1% • Top 10 @ 13.3% • Top 25 @ 11.3% • Top 26 – 50 @ 8.5% • Top 51 – 75 @ 10.4% • Top 76 – 100 @ 6.0%

  29. AVERAGE LEVEL OF REAL ESTATE: % • Average % = 9.1% • UK = 6.9% • Netherlands = 8.5% • Denmark = 8.2% •Germany = 9.9% • Switzerland = 16.7% •Sweden = 7.4% • Belgium = 5.4% •Finland = 11.7% • France = 10.5% •Norway = 7.2%

  30. MAX LEVEL OF REAL ESTATE: % • #1: Fondazione Enasarco: 41% @ Italy (#14) • #2: CGD Pensoes-SGFP: 36% @ Portugal (#57) • #3: Schindler Pensionskasse: 30% @ Switzerland (#74) • #4: Migros-Pensionskasse: 29% @ Switzerland (#8) • #5: CPV/CAP: 26% @ Switzerland (#27) • #6: BPF Bouw: 19% @ Netherlands (#4) • #7: AW-L: 18% @ Germany (#19)

  31. MAX LEVEL OF REAL ESTATE: % • Italy: 41% (FE @ #14) • Portugal: 36% (CGD @ #57) • Switzerland: 30% (Schindler @ #74) • Netherlands: 19% (BPF Bouw @ #4) • Germany: 18% (AW-L @ #19) • Denmark: 16% (ISP @ #76) • Finland: 15% (Etera @ #54) • Norway: 14% (Oslo P. @ #51) • UK: 11% (BBC @ #41) • France: 11% (UMR Corem @ #63) • Belgium: 9% (KBC @ #91)

  32. EUROPEAN PENSION FUND SURVEY • REAL ESTATE IN PENSION FUNDS IN EUROPE

  33. REAL ESTATE ISSUES • BENEFITS • ALLOCATION CRITERIA • VEHICLES • LISTED VERSUS DIRECT • CHALLENGES • “OVERALL” VIEW ON REAL ESTATE • RISKS: SOLVENCY II

  34. ENABLING STRATEGIES • STRATEGIES ✓ ✓ - fund size - real estate experience • REAL ESTATE VEHICLES ✓ - separate accounts - club deals - JVs • REAL ESTATE RISK MANAGEMENT ✓ • REAL ESTATE INFORMATION ✓ • PROACTIVE ROLE BY REAL ESTATE INDUSTRY ✓ • AWARENESS OF RISK FACTORS

  35. OTHER ISSUES • REITs • International diversification • Alignment of interest • Impact of DC schemes • Liquidity • Role of alternative assets

  36. REAL ESTATE IMPLICATIONS • CONTINUED ACCEPTANCE AND IMPORTANCE OF REAL ESTATE IN EUROPEAN PENSION FUNDS✓✓✓ • INCREASED UNDERSTANDING OF REAL ESTATE AS AN ASSET CLASS FOR EUROPEAN PENSION FUNDS✓✓✓ • LEADERS @ EUROPE • RISKS: SOLVENCY II • OPPORTUNITIES FOR REAL ESTATE INDUSTRY IN EUROPE

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