Greater Manchester Pension Fund plans to outsource the management of its property portfolio in order to hit its 10 per cent asset allocation target, in a review of its external management arrangements.
More schemes are looking to outside managers for their expertise in investing in a broader range of property opportunities in a bid to diversify sources of return.
The fund has £566m invested in its internally managed property portfolio and £30m in an externally managed venture property fund.
A tender for external management services will be issued imminently, said Tom Harrington, an investment manager at the fund.
We’re just increasing our exposure [to property] and need the external resources to do that
“We’re just increasing our exposure [to property] and need the external resources to do that,” he said.
The £12.6bn fund’s directly owned property portfolio comprises 58 holdings as well as nine specialist indirectly owned investments.
The direct property holdings are strongly biased towards the retail sector with a below-average allocation to offices.
Historically schemes have invested in core properties, but that is changing, said Nick Spencer, director of consulting for EMEA at Russell Investments.
“People are looking at broader opportunities in real estate and seeing that not just in terms of the UK, but a global opportunity set, and considering the opportunities that exist in value-added and developed refurbishment in closed-ended funds and using [real estate investment trusts],” he said.
As the range of investments has broadened, so too has the complexity of investing in the asset class, which has spurred schemes’ interest in external management.
Debt mandate
The fund also plans to issue a debt mandate tender during 2013/14 and is also currently procuring a global equity manager.
Private schemes have traditionally invested more heavily in debt than public sector schemes in the past, according to Tim Giles, partner at consultancy Aon Hewitt.
“Things like LDI [liability-driven investment] have been more readily accepted by private sector schemes in the past and are perhaps being used a little bit more than they have been in the past,” said Giles.
Investing in debt can be part of a scheme’s long term risk management if it wants to get its liabilities and assets to move in line, he added.
Schemes should weigh up the yields offered with the risk involved when choosing which type of debt to invest in, said Bernard Nelson, senior investment consultant at Buck Global Investment Advisors.
“The trick, or investment rationale is, [to say], ‘I know there’s different risk and some of the investments are going to go wrong but I am going to get more return than my risk free debt’,” said Nelson.
