European institutions get back into real estate

Office_buildings1European institutional investors moved back into riskier asset classes last year, with alternatives making up 11.7% of portfolios.

Allocations to real estate were particularly popular and they reached an eight-year high, accounting for 6.6% of investor portfolios.

The tenth European Institutional Asset Management Survey (Eiams) revealed that in 2009 institutional investors sharpened their focus on higher returns while doing their best to keep risk under control.

The results of the survey showed that overall investor sentiment is more positive which thus benefits alternative and less liquid asset classes.

Pension funds began to move down the liquidity scale in 2009 and diversify into alternatives such as real estate, hedge funds and private equity. The Eiams indicated that this diversification process was likely to continue. This was reflected in increased positions in real estate, private equity, hedge funds and commodities.

Real estate had a particularly good run. The survey showed that among the alternative asset classes, investment in this sector was ramped up. At 6.6% of investors’ total assets, real estate investment reached an eight-year high.

The data collected showed that all sizes of investors increased their allocations to real estate, with medium investors making the largest increase, which may indicate they are starting to redress the significant reductions made the previous year.

“Given the continued growth in real estate’s importance as an asset class, it is clear that it will have a major part to play in future investment portfolios,” said Simon Redman, head of product management, Invesco Real Estate, the survey sponsor.

“The survey results pick up the drive to recovery and reversion to ‘trend’ by investors as they rebalance their portfolios by reducing cash and show an increased appetite in alternatives,” Redman said. “There is a sense of a return to normality and investors appear resolute about resuming from where they were before the traumas and dramas inflicted by the financial meltdown.”

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