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UK schemes have a "narrow view" of property investment

25 July 2013

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Many UK schemes are not approaching their property investment in the right way and are missing out on better returns or taking more risk than necessary, an investment adviser has said.

Cardano said that pension fund investors have a "very narrow view" of property investment and that most funds fail to take advantage of the broader range of property opportunities that are available.

The investment adviser has called for the industry to broaden its understanding of the property investment.

"Part of the problem is that pension fund investors typically have a very narrow view of property investment," said Richard Urban, Cardano property investment manager.

He added: "Most pension funds get access to property as an investment through buying buildings in prime UK locations. However, this is only one of a much broader range of property opportunities, many of which will be attractive at different points in the property market cycle."

Urban said that in the last few years, it has been better to buy property debt in the form of loans or asset-backed securities (ABS) based on a portfolio of properties.

He said that these have both generated high returns of between 12-15% p.a. over the last four years since the rebound in the property market with less risk than buying properties compared to 10% for the traditional UK property market.

Most pension funds also have very small allocations to ABS backed by properties, because they have categorised ABS within their corporate bond portfolios and delegate decision to their corporate bond fund manager, Urban said.

He said: "It is time that the industry broadened what they understand comes under the property umbrella so that their clients can choose the best investment opportunities at each point in the market cycle."

First published 25.07.2013

monique_simpson@wilmington.co.uk