Pension funds eye parking space in realty

MUMBAI: Escalating lending rates and concerns of a real estate boom bust have not waned the interest of overseas pension money pools looking at investing in real estate and infrastructure funds in India. According to London-based private equity research firm, Private Equity Intelligence (Preqin), several overseas pension funds are eyeing India-dedicated private equity real estate funds.

Danish pension fund BankPension, Michigan Department of Treasury, Ohio School Employees’ Retirement System, Public School Teachers’ Pension & Retirement Fund of Chicago, £833 million (net fund) Shropshire County Council Pension Fund (from the UK) and the (euro) 250 million AP-Fonden 3 (from Sweden) are among those looking to invest in real estate and infrastructure activities in India.

“Asia is a popular investment target due to the economic growth in countries such as China and India. As far as India is concerned, there is an immense potential for further growth (of real estate) as a result of rapid urbanisation,” said Rajiv Sahni, head - real estate investments, Ernst & Young.

According to Preqin, BankPension is seriously considering to invest in the region (through funds), while the Michigan Department of Treasury has already made a commitment to the LaSalle Asia Opportunity Fund II, an opportunistic Asia- focused fund, and is seeking to invest more in the region.

Ohio School Employees’ Retirement System recently made a commitment to the Colony Investors VIII fund, which will be investing 50% of the capital in Asia. Public School Teachers’ Pension & Retirement Fund of Chicago, which has a total real estate allocation of $499 million, is actively increasing its allocation to Asian real estate, following advice from real estate consultants — Townsend Group. The allocation pattern of other funds is not known as yet.

“This year is already turning out to be an excellent year for fund raising, with $1.9 billion already raised for investment in Asia. There are currently 16 funds in the market that are seeking capital for investing in India, or pan-Asian funds, with a significant focus on India. These funds have a combined target of $15.5 billion, reflecting the huge increase in investor appetite for Asian and Indian real estate private equity vehicles,” Tim Friedman, marketing manager, Preqin, told ET.

Looking forward, it is likely, this bumper fund-raising (for key Asian real estate hubs) would be carried forward to 2008. It is likely to exceed $10 billion this year, Mr Friedman added.

As of May 2007, an aggregate $8.4 billion has been raised so far this year, and with a further $69 billion worth of funds on the road seeking capital.

“Overseas investors are not scared of corrections or short-term slumps. A minor correction in value is acceptable as real estate in India is growing 40-50% annually. Moreover, pension funds are long-term players and they are willing to remain invested for a longer time,” said Manish Gupta, director, Trikona Capital.