Z-Ben Advisors: China pensions eye $11bn in offshore RE

The $2.6 trillion pension industry in China is expected to invest $114 billion offshore by 2015 but only 10 percent of that is predicted to go to real estate, according to research firm Z-Ben Advisors.

The RMB15.7 trillion (€2 trillion; $2.6 trillion) China pension industry is preparing to deploy around RMB700 billion in offshore investments by the end of 2015, but they will likely be cautious in their commitments to real estate, according to a recent study by Chinese financial research firm Z-Ben Advisors.

By the end of 2012, insurance companies, the National Council for Social Security Fund (NSSF) and the country’s local pension plans had together deployed RMB200 billion into offshore investments, the firm said.  However, Z-Ben predicted that amount to increase exponentially as their funds increase (NSSF is expected to double in size by 2015) and as their allocation to offshore investments increases from 10 percent currently to a targeted 20 percent.

Of that allocation, however, Z-Ben real estate analyst Lillian Zhu said only 10 percent, equal to RMB70 billion, would be allocated to real estate initially. Most offshore assets are expected to remain in low-yielding cash deposits or treasury bonds, according to the study.

“[Chinese pensions] will think about all options for real estate, but they will take their time to be sure they don’t deploy a lot of money too quickly,” Zhu said. Many insurance companies also have a 10 percent limit on how much of their offshore allocation can be in real estate.

Zhu said most insurance companies and pension funds will probably start by engaging in direct real estate investments abroad, eventually branching into private funds and REITs. That chimes with how they invest domestically where the majority of their real estate investments are direct investments. Zhu expects many will follow the example of Ping An Insurance and its acquisition of the Lloyd’s building in London.

Zhu predicted many Chinese pensions would struggle to invest at scale overseas as they do not have the human resources or expertise to manager large property portfolios. As such, and referencing Ping An’s London acquisition again, she forecasted how they would seek to employ investment managers as advisors. Ping An employed the help of Gaw Capital for its acquisition.