CBRE Investors launch UK fund for defined pensions

The Los Angeles-based firm is tapping into an increasingly popular style of pension fund to launch a direct real estate investing vehicle

Richard Ellis has launched a UK property fund for defined contribution pension investors aiming to acquire £1 billion ($1.5 billion; €1.1billion) of assets.

The Los Angeles-based firm said the Richard Ellis had gained clearance from the Financial Services Authority on 25 February and would allow, for the first time, direct contribution pension investors access to a fund run by an investment manager solely focused on real estate.

Defined contribution pensions are also known as money purchase schemes where the greater risk lies with the employee rather than the employer. This is because in a defined contribution scheme the employee makes fixed contributions and the pension income at retirement depends partly on investment returns made by its vehicle. This is unlike a defined pension – or ‘final salary’ schemes – where a calculation is more often made on the basis of salary and years of employment.

According to union, the Transport Salaried Staffs’ Association, which represents around 30,000 workers, there is evidence that employers are using the move to defined contribution schemes as a way of cutting their costs because on the average they make less contributions.

Lindsay Tomlinson, chairman of The National Association of Pension Funds, told the Financial Times on 25 February that the organisation was concerned about the “rapid decline in defined benefit provision”, with many running deficits. It has thrown its weight behind defined contribution schemes.  

Richard Ellis said its decision to launch a property fund for defined contribution pension investors marked a significant development for the firm, which has managed funds on behalf of defined benefit pension schemes for more than 30 years.

It said the firm was making the move as it entered “a new and rapidly developing market within the UK pensions sector”.  

“The rapid growth of defined contribution pension schemes over the last few years has illustrated the need for property specialist expertise to be available to the rapidly growing number of direct contribution pension investors in the UK,” the firm said, adding this was the first time direct contribution investors would be able to access the CBRE Investors’ UK property investment strategy.

The structure of the fund fits within the realms of a Property Authorised Investment Fund (PAIF), the recently approved new tax structure for UK property investments.

These were first introduced into the UK two years ago, but the recession has caused firms to be slow in bringing them in.   

In a recent interview in UK magazine Investment Week, Julie Green, head of UK retail products at Aviva Investors, said: “There remain a number of operational/administrative issues, which we are working to overcome before we are able to convert any of our existing funds to Paifs.”

Jamie Farquhar, head of distribution at Clavis Walden Investments, a UK property fund specialist, said the benefit was tax: “Existing property funds suffer 20 percent corporate tax, which cannot be reclaimed. Paifs do not, so there is that difference in returns to investors.”

However, there are drawbacks in that income to the fund from rent, dividends and interest must be accounted for separately, with each having differing tax treatment.