IN THE NUTSHELL
Figure 8: Total Assets in US$ trillion and Annualised Growth in Asset of Top 20 Funds, 2010 (Split by Fund Domicile) Total Asset (US$’ trillion) 1.6
50
40.6
1.4
40
1.2 1.0
30
0.8
Asian pension funds are becoming incresingly enamoured of real estate as a long term investment option
0.6
11.7
0.4 0.2
3.5
3.6
5.0
11.8
20
14.7
10
Legend:
China
Denmark
Singapore
Canada
Malaysia
Korea
Netherlands
S. Africa
0
Total Assets in USD trillion (LHS) Annualised Growth Rate (RHS)
asset growth of 12.4%. China’s National Social Security Fund has shown tremendous growth of 40.6%, followed by Denmark (14.7%), Singapore (14.0%), Canada (12.8%), Malaysia (11.8%) and Korea (11.7%).
Towers Watson estimates that the Top 20 pension funds worldwide contributed more than 13% to the market. From 2004 to 2009, this sector has undergone an average annualised
In many countries, particularly the developed nations of the West, the real estate sector has generally been considered to be an attractive asset class for long term investment. In the
Source: Towers Watson
Figure 9: Top 20 Pension Funds Rank Fund Country Total Asset (US$ million) Government Pension Investment Government Pension Fund-Global ABP National Pension Federal Retirement Thrift California Public Employees Local Government Officials California State Teachers New York State Common PFWZ Central Provident Fund Canada Pension Florida State Board National Social Security Pension Fund Association ATP New York City Retirement GEPF Employees Provident Fund General Motors
Source: Towers Watson
14.0
6.3
A pension fund is generally the biggest player in the investment world, ahead of mutual funds, insurance companies, currency reserves, sovereign wealth funds, hedge funds, or private equity. Over the past decade, the total assets of pension funds globally have increased more than 75%, from US$17 trillion in 2001 to over US$30 trillion in 2010.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
12.8
0
Japan
by Hazrul Izwan & A.Lalitha
Annualised Growth (%)
USA
GROWING RETIREMENT SAVINGS THROUGH PROPERTY
9
Japan Norway Netherlands Korea USA USA Japan USA USA Netherlands Singapore Canada USA China Japan Denmark USA South Africa Malaysia USA
1,315,071 475,859 299,873 234,946 234,404 198,765 164,510 130,461 125,692 123,390 122,497 122,067 114,663 113,716 113,364 111,887 111,669 110,976 109,002 99,200
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Major demographic changes in Asia will see Asian pension funds reassessing their current conservative asset allocations. Increased levels of real estate in their portfolios offer an important asset class for Asian pension funds to achieve portfolio diversification and meet their significantly increasing future liabilities in an effective riskadjusted manner” Professor Graeme Newell, University of Western Sydney early 70s, pension funds began investing in real estate, predominantly in the office, retail and industrial sectors. Over the last 40 years, more than a hundred billion dollars have been injected into the property market through a number of investment modes such as direct acquisition, real estate investment trust (REITs), unlisted real estate funds and joint-ventures. In Asia, however, real estate has not traditionally made up a significant level in most portfolios. Asian pension funds focus mainly on domestic low-yield assets, particularly fixed income and equities.
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IN THE NUTSHELL
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(from previous page) The exposure level in Asian pension funds is typically lower than in US, Canada, UK and Australia. Japan, which has the world’s largest pension fund, allocates less than 2% to real estate investments.
in an effective risk-adjusted manner,” he explained in a report on the significance of real estate in Asian pension funds.
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With greater institutional involvement in direct real estate investment in Asia, more income producing properties are now being traded”
Colliers International (HK) Ltd regional director David Faulkner said, “With greater institutional involvement in direct real estate investment in Asia, more income producing properties are This scenario appears to be changing, now being traded.” however, as more and more Asian David Faulkner, pension funds look for new asset Recent years have witnessed intense Colliers International (HK) Ltd classes in a search of good and stable reform efforts in pension funds around yields. Real estate is increasingly being the globe. Malaysia’s largest pension considered as one such asset class that fund, the Employee Provident Fund Recently, EPF and Singapore’s offers safe diversification with stable (EPF) has also stepped up to increase Guocoland entered into 20-80 jointyield. the asset allocation for real estate. venture agreement to develop a US$2.6 billion mixed-use development which is Figure 10: EPF’s Gross Investment Income in 2010 expected to be completed in 2015. Money Market Instrument 2.9% Since early last year, EPF has been Property & revealing its top equity investments Equities 45.5% Miscellaneous in Bursa Malaysia on a quarterly basis. Income 0.5% This is to promote greater transparency and to reassure its members that the investments are being undertaken in the interest of growing their retirement savings and in accordance with Malaysian investment and corporate governance Government best practices. Securities 22.1% EPF has shares in property development and property-related companies such Loans & Bonds 29.2% as Malaysian Building Society Berhad Source: Employees Provident Fund (EPF) (67.25%), Malaysian Resources University of Western Sydney professor “Currently, the pension fund has less Corporation Berhad (41.78%), WCT of property investment Graeme Newell than 2% of its total accumulated funds Berhad (21.33%), Sime Darby Berhad said major demographic changes in Asia [amounting to US$ 140 billion] invested (15.29%), SP Setia Berhad (14.86%) and will see Asian pension funds reassessing in properties. However, it has a IJM Corporation Berhad (14.67%). their current conservative asset strategic asset allocation target of 5% allocations. for properties,” said EPF deputy chief In order to create a vibrant domestic executive officer for investment Shahril property market, EPF has pledged to “Increased levels of real estate in their Ridza Ridzuan. continuously increase its real estate portfolios offer an important asset exposure. Although EPF’s fund size is class for Asian pension funds to achieve Local properties owned by the EPF smaller compared with pension funds portfolio diversification and meet their include Sogo Shopping Complex, Wisma in Europe and US, it is more proactive in significantly increasing future liabilities KFC, MAS Academy, Block A (Plaza implementing its real estate strategy. Sentral) and Gurney Resort Hotel. EPF is also involved in a mixed development EPF reported that its property and greenfield project at the 3,000-acre miscellaneous income last year rose Rubber Research Institute Malaysia 17% to USD34.4 million in 2010 from Currently, the pension land in Sungai Buloh which it acquired US$29.3 million in the preceding year. As for close to US$1 billion. such, total gross investment income in fund has less than 2% of its 2010 reached US$8.02 billion compared total accumulated funds While aggressively exploring the with US$5.74 billion in 2009. invested in properties. domestic market, the EPF is also However, it has a strategic increasing its exposure overseas and is Moving forward, Malaysian pension actively seeking investable properties funds can adapt to increase their asset allocation target of 5% in Singapore, Australia and the United exposure and stimulate the property for properties” Kingdom. market by establishing clear real estate risk management procedures, Shahril Ridza Ridzuan, Its international investment strategy particularly in terms of a risk-sharing Employees Provident Fund (EPF) includes the acquisition of London strategy that includes joint-ventures properties The Fleet Street, One and co-investment with other major Sheldon Square and Portman Square for pension funds, sovereign wealth funds US$789 million in August 2010. and real estate investors.
US$ 8.02 billion
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