Returns from real estate have exceeded investors’ expectations in continental Europe more than any other ‘alternative’ asset class including hedge funds and private equity, a new survey from JPMorgan Fleming showed yesterday.
Real estate returns exceeded expectations for 36 per cent of institutions, compared with 28 per cent for hedge funds and 16 per cent for private equity, it said. ‘Real estate has seen the highest incidence of investment across the alternative asset classes with 70 per cent of respondents across Europe invested. Many European institutions would consider real estate a core part of asset allocation,’ JP Morgan added in its 2003 survey of alternative investment strategies. British institutions were mostly excluded from the property portion of the survey.
Around 11 per cent of total assets in investment portfolios in continental Europe are allocated to real estate, with the highest proportions in Switzerland (17.1 per cent), the Netherlands (12 per cent) and the Nordic countries (10.1 per cent). This compares with just 3.3 per cent in private equity and 2.5 per cent in hedge funds.
JP Morgan said given the high proportion of institutions already invested in property, it was unsurprising than only ten per cent of all those surveyed, including Britain, were considering investing in the asset class in the future. But when the question on future investment strategy was put to institutions who already hold real estate, 29 per cent said they intended to increase their exposure further.
The survey said that the 18 per cent of this group who intended to cut their property holdings, were probably looking to rebalance their portfolios after three years of strong real estate performance relative to equities.
Although 45 per cent of institutions state that their allocation to real estate will remain unchanged, they may be making changes within their allocation in terms of where they invest geographically.
Over the past 15 years many institutions across Europe have decreased their allocation to domestic equity in favour of increasing exposure to international equities to diversify risk. Many institutions across Europe are now beginning to adopt the same strategy for real estate.
The perceived level of risk cited by institutions as a reason for not selecting alternative investments, was much lower for real estate (13 per cent of respondents) compared with private equity (64 per cent) and hedge funds (56 per cent).
The survey asked 12 institutions who are currently not invested in property but are considering doing so, which type of strategy/ vehicle they would use.
