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

• 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

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

Leading pension funds in Europe

Pension fund Country Global rankTotal assets

(2011)Government Pension Fund Global

Norway 2 $551B

APG Netherlands 3 $319B

PPGM Netherlands 13 $133B

ATP Denmark 17 $124B

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

PENSION FUND ASSETS: THRESHOLDS

• Top 5: $264B• Top 10: $145B• Top 25: $88B• Top 50: $50B• Top 100: $31B• Top 150: $21B

DRIVERS OF PENSION FUND CHANGES IN EUROPE

• DEMOGRAPHICS

• COSTS AND DEFICIENCIES

• FUTURE LIABILITIES

• CHANGES

Demographic factors in Europe: 2005-2050

Country

Old-age dependency ratio Pension sustainability

index2005 2050

UK 24% 45% #33

Germany 30% 56% #26

Netherlands 21% 39% #40

France 25% 48% #19

Denmark 23% 40% #42

Switzerland 24% 39% #36Spain 24% 67% #6

Demographic factors in Europe: 2005-2050

Country

Old-age dependency ratio Pension sustainability

index2005 2050

Italy 30% 66% #9

Norway 22% 41% #39

Sweden 26% 41% #43

Finland 25% 47% #37

Ireland 17% 45% #16

Austria 25% 53% #24Belgium 26% 48% #18

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

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

REAL ESTATE IN PENSION FUNDS

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)

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

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

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%

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%

MAJOR REAL ESTATE PLAYERS (€)

MAJOR REAL ESTATE PLAYERS (€)

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%

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%

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

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

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

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

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

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%

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%

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)

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)

EUROPEAN PENSION FUND SURVEY

• REAL ESTATE IN PENSION FUNDS IN EUROPE

REAL ESTATE ISSUES

• BENEFITS

• ALLOCATION CRITERIA

• VEHICLES

• LISTED VERSUS DIRECT

• CHALLENGES

• “OVERALL” VIEW ON REAL ESTATE

• RISKS: SOLVENCY II

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

OTHER ISSUES

• REITs• International diversification• Alignment of interest• Impact of DC schemes• Liquidity• Role of alternative assets

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