Property allocation in Swedish Pension Funds
Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesisAlternative title
Fastighetsallokering i svenska pensionsfonder (Swedish)
Swedish pension funds have vast mount of money to invest in order to maintain a stable and functioning pension system. Real estate is an important part of the investment strategy and contributes as a relatively low risk diversifier to the portfolio. The major share of
Swedish pension money is place in public pension and in occupational pension. There are several institutions working to manage this capital, both governments owned and private owned institutions. Historically allocation of properties among institutional investors has taken place in the home market due to the need of local knowledge when managing real
estate. Real estate is less correlated with the interest rate market creating a lag in fluctuation when the interest rate changes, this yield gap creates valuable opportunities to
invest in real estate to better yields when the rate falls. Since a few years after the turn of the millennium institutional investors has increased their real estate holdings rapidly onfirming that, or at least indicating, that there exist a yield gap in real estate investments.
Historically institutional investor’s allocation in property as a part of the whole portfolio has
Been low, in 2001 the public pension funds had approximately 3% invested in real estate compared to todays 10 %. The main explanation to the significant increase in property allocation in the public pension funds is the low interest rate environment the market is currently experiencing.
The pension funds prefer to own real estate directly for two major reasons. Since real estate is a relatively illiquid asset it is important to keep control over the investment and secondly to avoid short term behaviour. Over the past decade investments in real estate has increased with 900 billion SEK divided among the institutions invested in this thesis.
This increase has established real estate as a more vital part of the pension fund portfolio and we believe that allocation levels will remain relatively stable at this level. However the
Limited supply of properties suitable for pension funds will together with the decreased
yield--‐gap result in a slowdown or even stop in the pension fund possibility to further increase their property allocation.
Place, publisher, year, edition, pages
2016. , 73 p.
Real estate, pension funds, property, allocation, Swedish
Fastigheter, pension, pensionsfond, AP, allokering, Sverige
Engineering and Technology
IdentifiersURN: urn:nbn:se:kth:diva-190177Archive number: 452OAI: oai:DiVA.org:kth-190177DiVA: diva2:951880