The Shipbuilding Industries Pension Scheme plans to boost its property allocation to around a tenth of its overall portfolio in its hunt for diversification, capital preservation and income.
UK pension schemes have increasingly been investing in real assets, with property at the forefront. Strong performance last year saw the IPD UK Monthly Property Index achieve a record 19.3 per cent return, surpassing its previous 2005 peak of 19.1 per cent.
But the strong demand for core property assets has led many pension funds to seek opportunities through actively managed second-tier investments.
The £1.5bn shipbuilders’ scheme announced last week a £130m, 10-year investment in UK property through fund manager First Property Group, which will gradually replace an existing investment of £35m with the manager.
Roger Buttery, managing director of Hadrian Trustees, the sole trustee of the scheme, said it expected to make another £30m property investment.
He said: “The longer-term intention is to hold around 10 per cent of the total portfolio in property, in which First Property will hold £130m.”
A statement released by First Property to announce the mandate said: “The investment remit is broad, encompassing both investment and development properties across all sectors, including offices, retail, industrial and residential.”
But John Belgrove, senior partner at consultancy Aon Hewitt, said he was not seeing much appetite for investment in property from clients beyond the holdings they already had.
“Where we have significant new investment in property within the last few months is property opportunistic funds,” he said. These funds target property assets that can be improved to increase the income.
“This is outside the core areas where valuations haven’t increased as much,” Belgrove added.
Dermot Kiernan, fund manager at M&G Real Estate, said investors were keeping a keen interest. “You’ve still got these allocations coming through,” he said. “The reason for that is… people are predicting growth coming from rental growth as well.”
Kiernan said strong corporates could continue to drive returns as their finances improve and they look to expand.
But he added: “We’re not immune to what happens in the wider economy. In an election year, we could see some impact and a delay in decision-making from some occupiers. We won’t expect the same level of high performance for 2015.”
The shipbuilders’ scheme reported a £50m allocation to property in its March 2014 annual report, with £21m of that with property company CBRE.
Buttery said the holding with CBRE was in the process of being sold and the bulk of the assets would be redeemed by the end of 2016.
