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Pension funds look to commercial property lending to boost income
June 2, 2009
By Rachel Constantine

According to industry insiders, pension funds are increasingly beginning to look to commercial property lending as a profitable asset class.

Several lenders are launching secure funds for institutional investors, which are financed by pension funds. Others have reported that pension funds seem increasingly interested in taking a more proactive stance to lending to commercial property investors as a means of boosting their income.

Pension funds are looking at investment opportunities that are low-risk and have yields that are in excess of those generated through UK Government Bonds and are also in excess of deposit interest rates.

Commercial loans have limited correlation with equities and provide regular income to pension funds. This is fuelling interest at a time when funds are taking a greater interest in the long-term health of the economy.

Several senior figures in the commercial lending industry believe that renewed interest from pension funds will act as a catalyst for new lending activity. In the past, debt instruments have been largely ignored by pension funds, despite the fact that other European funds have long-recognised them as a valuable asset class.

Head of institutional business at Baring Asset Management, Richard Graham, has recently admitted that his firm is starting to build up positions in commercial property. Chris Gower, of HSBC Asset Management, has a similar view of the market, which is currently offering several distressed property opportunities. He said that these are suitable for the long-term investor who does not necessarily need to see a return over the next few years.