European pension funds reveal most important features in long income property investment managers and strategies


Risk management (24.5 per cent), performance track record (22.4 per cent), competitive fees (21.3 per cent) and origination capability (20.5 per cent), are the features valued most by European institutional pension funds when considering long income property investment managers and strategies.

That's according to new research from Alpha Real Capital (Alpha), prompted by findings from December 2019, which uncovered 84 per cent of professional investors believe the level of investment in long income property from pension funds will rise over the next two years, with one in five (20 per cent) anticipating a ‘dramatic’ increase.

Alpha’s new research, was conducted with 125 institutional pension fund investors across the UK, Ireland and Continental Europe. In total, 25 institutional professional investors were interviewed in each of the five countries, with the respondents demonstrating several marked differences in the responses from each country, as well as some counties indicating some common values.

In assessing the attractiveness of long income strategies, 68 per cent of UK pension funds surveyed believe that ESG factors (relating to long lease property assets or managers) are “very important”, higher than the “very important” scores for factors such as distribution yield, expected long term performance, and income security.

Just 64 per cent of German and Swiss respondents believe that “income security” is at least “somewhat important” in assessing the attractiveness of long income property. This is in contrast to the 100 per cent score from UK and Dutch pension funds. Only 24 per cent of German pension funds surveyed believe that terminal value/re-letting risk is a “very important” factor, compared to 100 per cent in the Netherlands and an average across all geographies of 54 per cent.

Hugo James, Partner and Head of Long Income, Alpha Real Capital, says: “With increasing interest in long income property as an asset class, it is interesting to see the differing priorities of pension fund investors within each country. There is, however, a degree of commonality in valuing the importance of long-term returns with the need to understand the risks involved in investing in the asset class.

Managers will need to demonstrate to their investors that they understand and can quantify these risks to provide confidence that expected returns will materialise for investors. At Alpha, our transaction rating processes are a key component of our investment strategy to mitigate risk, and we encourage investors to build their confidence in long income property and increase their exposure to this growing asset class.

“In relation to ESG factors, these are becoming increasingly important to our investors and we believe they must be a key part of the investment process when considering long income property assets.”

Alpha Real Capital is well positioned to capitalise on the growing investment opportunity set and investor demand for long income property assets. In the last year we invested more than GBP1.1 billion in long income assets across commercial ground rents, long lease property, social real estate and renewables on behalf of our funds and clients.  Since, December 2017, the value of long income real estate assets in our funds has increased by 65 per cent from GBP2.3 billion to GBP3.8 billion.