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Insurance Companies Compete Against Sovereign Funds for Institutional Real Estate

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Growing in prevalence, global insurance giants like Munich-based Allianz SE are competing against sovereign funds on core properties. Historically, institutional real estate has been an important asset class for insurers. In 2013, Allianz had issues finding enough “good” deals in real estate.

The 9.1% increase in total deal amount reflects a growing appetite for real assets by sovereign wealth funds.

The mad rush toward real assets was prompted by central banks lowering rates, forcing institutional investors to crave yield in illiquid asset classes like real estate. The bidding conflicts over institutional real estate by sovereign funds, elephantine pension funds, real estate managers and other insurance companies are creating bubble-like conditions in certain markets.

Earlier in the 2000s, insurance companies used to compete for prime properties from real estate investors like the Kuwait Investment Authority, the Abu Dhabi Investment Authority and GIC RE. In some circumstances, insurance companies sold these properties to sovereign wealth funds, yielding nice profits. For example, in July 2008, Tishman Speyer Properties and Prudential Real Estate Investors (owned a German real estate entity, TMW) sold a 90% stake in the Chrysler Building to the Abu Dhabi Investment Council. More public investors are allocating to real estate.

Other sovereign funds and large pensions are either entering the direct property game, or increasing allocation like Norway’s Government Pension Fund Global (GPFG), the China Investment Corporation, Korea’s National Pension Service, CPPIB and China’s State Administration of Foreign Exchange (through special vehicles). Norway’s SWF has even found insurers as partners like Metlife.

Direct Sovereign Wealth Fund Transactions – Real Estate – Billions USD

real estate sovereign wealth fund
Source: Sovereign Wealth Fund Transaction Database, January 2014

The mega shift of sovereign wealth money toward real assets is having a profound effect in global real estate markets. Direct sovereign wealth fund transactions in real estate totaled US$ 16.35 billion in 2012 and increased to US$ 17.83 billion in 2013. The 9.1% increase in total deal amount reflects a growing appetite for real assets by sovereign wealth funds.

Follow the Money – Episode 48

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This long-form podcast was recorded on December 11, 2018. Michael Maduell dissects the latest geopolitical trends that can impact institutional investors such as pensions, sovereign wealth funds, and endowments. Maduell lends his opinion on the lawsuit of Neiman Marcus and bumps in the road for augmented reality.

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CONTENTS
1:15 Huawei, Canada, Brexit, and Macron Headache
6:30 Sovereign Wealth Fund Asset Allocation
9:58 India Gets a New Central Bank Governor
13:26 Pensions Go Bust on U.S. Retailers
17:04 Augmented Reality and Sovereign Funds
22:00 Former CalPERS CIO Goes to Morgan Stanley Investment Management
24:30 Oman Investment Fund Goes on Defense in Public Markets
25:00 Japanese Scandals and Opportunities

EPISODE 48

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The views in this media are expressed by Michael Maduell and other participants and are not reflective of the Sovereign Wealth Fund Institute (SWFI).

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Danica Pensions Sells Danica Pension Sweden

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Danica Pension sold Danske Pension Försikringsaktiebolag (publ) (also known as Danica Pension Sweden) to a group of investors for around 2.6 billion SEK. Danica Pension is part of Danske Bank A/S. Of the total amount, 2.3 billion SEK is being paid in cash, while the rest is in the form of a debt instrument from Danica Pension.

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Stephen Gilmore Named CIO of New Zealand Superannuation Fund

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The Guardians of New Zealand Superannuation appointed Stephen Gilmore as chief investment officer. Previously, Gilmore was Chief Investment Strategist at Australia’s Future Fund – holding a series of positions between 2009 and 2018. In a press release, NZSF CEO Matt Whineray said, “We are delighted to have been able to attract a global investment leader of Stephen’s calibre to the Guardians. The NZ Super Fund is expected to grow strongly over the next few years and Stephen’s experience at the Future Fund, one of the world’s leading sovereign wealth funds, will be invaluable.”

Gilmore’s appointment is effective late February 2019.

Gilmore also had roles at Morgan Stanley, Banque AIG, the International Monetary Fund (IMF), and Chase Manhattan Bank.

Image photo is provided courtesy of the New Zealand Superannuation Fund.

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