Morena, Furness and Truppi: A Cross-comparison analysis of the UK and Italian pension funds – the real estate asset class in the portfolio investment

Abstract:

Pension funds could be considered as institutional investors who have particular goal for those people retiring. Albeit with different weights, they play an important role in the pension system of many western countries both in terms of reaching financial sustainability and social security. As OECD reports, in 2013, pension funds confirmed their growing importance amongst institutional investors. With different features UK and Italians pension funds fit itself into this scenario, representing in 2013, respectively, 105,78% and 6,14% asset-to-GDP ratios. Amid the asset class in portfolio of pension funds, the real estate asset is the most important alternative as demonstrated by numerous scientific publications.

With this is mind, this work aims to highlight and show differences that incur between two samples of pension funds in the UK and Italy, in the allocation of real estate asset class of their portfolio. Particular attention has been given to the space of real estate asset class, the different instruments and location and type of property investments in both samples.

In order to achieve these objectives, two samples have been analysed, preceded by a brief explanation of the different pension system current in UK and Italy. For the first sample, this study analysed the top 20 biggest pension funds in UK, while the second sample comprises 10 pre-existing pension funds in Italy. Data is collected from annual reports available on pension funds website and refers to five years, 2009-2013.

Among the first evidence emerged, there is certainly the general asset evolution common to the two samples, albeit with obvious differences in terms of absolute growth and portfolio diversification. Then, it is possible to see the different allocation of property asset in the portfolio investments, with a greater propensity to historical real estate asset class and a recent reduction of properties for the Italian sample compared to UK, where there is a substantial unchanged over the years. Finally, after having seen a growing trend of investment in real estate funds in both cases, it can also be observed that there is a common propensity to invest exclusively in the national territory and specifically in commercial buildings.

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