Limited disposal of real estate assets by troubled pension funds

The chance of large-scale divestments of real estate assets by troubled pension funds is very limited. On the contrary, troubled pension funds, which have to pay out more than they may earn in investments and premium income, will possibly prefer to invest in high-yielding real estate, according to Dexia Securities in its latest research Â'Pension Watchdog BitesÂ' on the financial position of Dutch pension funds.

The effects of the more stringent regulations by the PVK (Pensions and Insurance Supervisory Authority of the Netherlands) were researched in this report. Their regulations must be followed by all ënsion funds in the Netherlands, of which presently it is estimated that about one-third has insufficient cover due to the dramatic drop on the global stock exchanges.

The following pension funds are possibly in the danger zone if the AEX is around 350: ABN Amro, Ahold, Akzo Nobel, Heineken, KPN and TPG, Philips, IHC Caland, Nutreco, Océ, Vendex KBB, VWS and Wessanen. These pension funds require urgently extra income. In order to comply with the new regulations pension funds will have to generate an extra income of € 130 bln over the next eight years to create sufficient buffers.

According to the report, pension funds do not consider to divest their share holdings, but does expect in due time that pension funds will be net sellers of shares.

As far as real estate is concerned, pension funds have a well balanced portfolio with an excellent investment mix, and (partially) divesting these assets is highly unlikely.

As the population of the Netherlands gradually ages, pension funds will have to pay out more in the future. Pension funds may well have to consider to invest in real estate as real estate has a high return in cash, either in dividends or rental income, to offset the increased capital outflow in the future.

(source: Dexia Securities)

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