Pru sees no property fallout from BP share dive

LONDON (Reuters) - BP's (BP.L)(BP.N) share price collapse is unlikely to spark an exodus of pension fund money from UK property, the head of Prudential's (PRU.L) PRUPIM said, quelling fears of fire sales to fix asset allocation imbalances.

The oil giant's shares, a staple holding in UK pension funds, have shed almost 50 percent since the U.S. oil spill disaster struck.

PRUPIM Managing Director Martin Moore said UK institutions were broadly maintaining or raising exposure to property and would not be swayed by short-term stock volatility.

"We are competing at the multi-asset allocation table for capital. That is reviewed on a regular basis and that has be a global, thorough and dispassionate process," Moore told the Reuters Real Estate and Infrastructure Summit on Wednesday.

"Even if we think the property market is looking relatively good value, if the equity market looks better value, then the money gets allocated there. But the appetite seems to be moving toward increasing exposure to property rather than decreasing."

PRUPIM is landlord to about 4,000 tenants over 800 properties worth about 15.4 billion pounds ($22.83 billion), about 3 billion pounds of which is located in continental Europe, North America and Asia Pacific.

Moore said institutional investor interest in French, German and Nordic property was rebounding even quicker than the economic fundamentals after a rapid bounce in prime real estate values in the UK, a market broadly seen to lead most western European markets by 8-12 months.

"I would expect to see relatively more money flowing toward Europe going forward and we hope to benefit from that," Moore said, outlining ambitions to grow PRUPIM's flagship European real estate fund, the M&G European Property Fund, by 300 million euros to 1 billion euros.

"We are optimistic we will attract new money into that fund over the course of the year and we will be faced with the pleasant challenge of finding a home for that money," he said, adding these would be the first material inflows since before the slump.

Moore said the vast majority of PRUPIM's funds "will be net and quite strongly net investors" in 2010 as most segments of its core UK real estate market reached fair value.

Competition for the best deals would be tough, he said, as some rival funds eyed growing property allocations within an average a 5-7 percent range, closer to PRUPIM's 10-12 percent.

"They are they are starting off from lower levels of exposure, that is why we're hearing there's desire to step up a little," said Moore, who joined the UK insurer in 1974.

"The sovereign wealth funds -- be it out of Korea or Norway -- they are often starting out with no exposure or low exposure and I can see these guys becoming very, very active," he said.

FEES

Moore said investment managers will have to become open to fee negotiations as they compete for business from ever more discerning investors, who were "still bruised and reeling" from bad experiences over the last five years.

"Where we have invested in funds where we have had fee arrangements born of different times, there has been dialogue around the structure of the fund; its governance, independence and fees have been part of that," he said.

"I think it would be a recurring feature," he said.

"The way you align (interest) is: the manager needs to be rewarded for the alpha they generate...you should not encourage managers to asset gather, to lever and pay fees on gross asset value. That can and did influence behavior that was not always in the best interest of investors," he said.

(Additional reporting by Daryl Loo, Editing by Andy Macdonald)

($1=.6746 Pound)

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