MIPIM: AP1 using secondaries to actively manage real estate

Första AP-Fonden, the First Swedish National Pension fund (AP1), is using the secondary market to actively manage its real estate portfolio.

Johan Temse, investment manager at AP1, said the pension fund was still a long-term investor, but it was “taking a more active management approach”.

Speaking at an event at MIPIM in Cannes this week, he said the secondary market was a cheaper and faster way of accessing real estate markets with greater visibility.

AP1 is active on both the buy and sell side to manage its portfolio, Temse told an audience of investors and investment managers at a seminar organised by the European Association for Investors in Non-listed Real Estate Vehicles (INREV).

Secondaries, he said, can enable AP1 to exit investments should better opportunities arise elsewhere, or if – for example – the pension fund needed to reduce its real estate allocation.

He also said the investor was not keen on committing capital to “blind-pool funds”, because there is no certainty regarding how the capital will be deployed, the pricing of assets and what the portfolio will eventually look like.

Temse joined AP1 last year. He previously worked at Aberdeen Asset Management within its real estate secondaries business. AP1 was a cornerstone investor in one of its funds.

The INREV event was dedicated entirely to secondaries investing. Thomas Kallenbrunnen, head of real estate and alternative investments at Helaba Invest, introduced the topic, arguing that there were a number of motivations for buyers, sellers and funds managers to support the growth of the secondary market.

And while there was no longer the opportunity to capitalise on large discounts in the secondary market, “the pricing argument” is still there, he said.

Flavio Casero, partner at Rockspring Property Investment Managers, likened the secondary market to “oil in the engine”, describing it as an “additional, complementary way of managing liquidity”.

Despite this, he said, there were drawbacks to the secondary market, especially around “destabilising the nature of the investor base”, such as bringing in new investors that might have more short-term objectives.

Kallenbrunnen said that, in his experience, bringing “active investors” into a fund is almost always positive for the existing investors and fund manager. 

Temse admitted that some fund managers still have reservations about the secondary market and are not comfortable when their funds trade at discounts to net asset value (NAV).

INREV has been working for several years to help the secondaries market develop. Earlier this year, INREV research manager Stephen Ryan wrote in IPE Real Estate about why the sector could be beneficial.

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