Changing capital allocations. Case study: Pension Funds
This article originally featured in Active Capital 2019.
At this stage of the cycle, there remains a strong case for allocation to commercial real estate, especially for pension funds, with their goal of liability matching.
"There will be a continued allocation to real estate because we have an ageing population … there is a demand for pension funds to meet their obligations"
Knight Frank analyse the change in global commercial real estate allocations by pension funds pre- and post-global financial crisis. Pension Funds, with the importance of income and liquidity have historically held higher weightings in the more traditional sectors of office and retail. Using an augmented Black Litterman portfolio optimisation model, we also simulate future optimal allocations on the basis of historic re balancing patterns and forecast future total returns. We predict that pension funds could reduce overall weightings in retail to 27% for pension funds by 2023. We expect pension Funds to keep a significant holdings in income producing office assets.
