This article is from the Australian Property Journal archive
INSTITUTIONAL investors across the world reduced their exposure to real estate in 2009 as commercial property values dived but they are building up their appetite again.
The Russell Investments 2010 Global Survey of super funds, endowments foundations and insurance providers, reported that they are looking to increase their allocation to infrastructure and commodities, and real estate from 14% to 19% over the next two to three years.
Russell Investments’ director of alternative investments Asia Pacific Nicole Connolly said Australian respondents showed similar allocation preferences to their global counterparts, however, favouring infrastructure, commodities and real estate.
“Although most global regions are increasing allocations to infrastructure and commodities they are coming from a very low base of between 0.3 and 0.7 % respectively. Australian investors on the other hand have had higher allocations to these sectors for some time, providing inflation protection and portfolio diversification,” she added.
The survey findings showed Australian institutional investors’ real estate allocations have declined less than their global counterparts, from 11.5% in 2003 to 8.7% in 2009. This compares to North American investors where allocations decreased to 4.0% in 2009 from 7.3% and Europe where exposures fell to 4.9% from 9.8% in 2005.
Connolly said this was due Australian investors having a high exposure to local real estate, which performed better that international property markets during the financial crisis.
“The performance of alternatives during the recent downturn had confirmed institutional investors continued support of the asset class.
“Alternatives have proved their role as portfolio diversifiers and risk-mitigators during volatile markets, and we expect continued demand from institutional investors even if the global recovery were to falter,” she continued.
Globally in 2009, real estate’s share of the total investment portfolio for institutional investors responding to the Russell survey stood at 4.0% in North America, 4.9% in Europe and 2.7% in Japan. Respondents are expecting valuation-driven increases by 2012 in each of these regions.
Currently real estate represents 4.1% of total allocation globally and is expected to rise to 6.6% by 2012. This will result in real estate holding the lion share of institutional money compared to 1.1% in commodities, 1.4% in infrastructure, 5.9% in private equity and 5.7% in hedge funds.
According to the report, the growth in real estate allocation is partly due to the rebalancing of weight, perceived opportunities due to the current stage of the economic cycle and attractive inflation features.
Australian Property Journal
