Asia pensions urged to increase real estate allocations

In order to meet future liabilities, the Asia Pacific Real Estate Association has called on pension funds in the region to mirror their US and European counterparts which have asset allocations to real estate of up to 10%.

Asian pension funds should start increasing their asset allocations to real estate if they want to meet future liabilities, said one of Asia's real estate representative bodies.

Despite global pensions allocating a typical 7 percent to 10 percent of their assets to real estate, equivalent to around $750 billion, Asia pensions are much more conservative, according to the Asia Pacific Real Estate Association (APREA).

However, in order to meet future pension liabilities from increasing urbanisation and an aging population, APREA has urged pension funds in the region to mirror the asset allocation policies of their US and European counterparts.

In Japan, 35 percent of pensions invest in real estate, but typically allocate just 1.2 percent to the asset class, APREA said in its study.

South Korea has seen a dramatic increase to real estate over the past 10 months alone, rising from 1 percent to 10 percent.

The $270 billion National Pension Service of Korea has led the way for the country, last month awarding two $400 million separate accounts to Pramerica Real Estate Investors and Rockspring Investment Management to target core markets in Europe and Asia and a $300 million mandate to The Townsend Group to invest in distressed real estate funds.

APREA’s sentiment mirrors others conducted recently, last month, London-based Grosvenor released a report in which it also warned pensions they were underweight currently to real estate. To read what Grosvenor said, click here.

The APREA study, conducted by Professor Graeme Newell, of the University of Western Sydney, found most Asia pension funds were predominantly focused on domestic fixed income assets with some plans excluded from investing in real estate.

But with Asia pensions accounting for eight out of the top 20 largest plans globally in 2010, and representing 60 percent of the world's population, APREA said real estate should be part of the asset allocation mix. The study also questioned pension plans in the region, revealing a desire by investment officers to know more about real estate.

APREA chief executive officer Peter Mitchell said: “Globally, pension funds have been tapping into this important asset class for years and we hope that this trend will be emulated in Asia.”

Asia pensions assets are expected to rise to $4.3 trillion by 2020, the report added.